State and Local Tax Policy: How have the sources of revenue for state and local governments changed over time?
State and local governments collected general revenues totaling $2.4 trillion in 2008. A fifth of this, or $481 billion, came as transfers from the federal government, with the remainder coming from state and local taxes, charges, and miscellaneous revenues. Although revenue collections have been relatively stable as a share of GDP over the past 30 years, their composition has changed: relatively less now comes from property taxes and relatively more is from charges and miscellaneous revenues (see figure 1).
- At $614 billion, charges and miscellaneous revenues were the largest source of state and local governments’ own-source revenue in 2008. Collections in 2008 peaked made up 25 percent, a 9 percentage point increase since 1972 and the highest share over the intervening period.
- State and local governments’ reliance on the property tax has declined over the past 30 years. Property tax revenues decreased as a share of general revenues from 26 percent of general revenue in 1972 to just 17 percent in 2008, with virtually all of the decrease occurring in the 1970s and early 1980s. This decline was largely offset by the growth of charges and miscellaneous revenues.
- Together, general and selective sales taxes provided the largest share of state and local tax revenue in 2008, totaling $449 billion, although their share of general revenue declined from 22 percent in 1972 to 18 percent in 2008. Selective sales tax revenue accounted for nearly this entire decline, falling from 10 percent in 1972 to 6 percent in 2008, while general sales tax varied between 12 and 14 percent. Most of the decline in selective sales tax collections was due to decreasing tobacco and motor fuel tax revenue.
- Personal income taxes increased from 9 percent of all revenues in 1972 to a peak of 14 percent in 2001 at the end of the 1990s boom before falling back to 11 percent in 2003. Collections in 2008 totaled $305 billion, or 13 percent of general revenue.
- Total state and local revenues increased slightly as a share of GDP over the past 30 years, growing from a low of 13.4 percent in 1979 to a high of 16.3 percent in 2001. Revenues remained at approximately this level till 2007 and have grown slightly to 16.9% of GDP in 2008.
- State and local revenues and intergovernmental transfers have grown at different rates (see figure 2). State own-source revenue measured as a share of GDP by over 30 percent between 1972 and 2008 from 5.7 percent of GDP to 7.4 percent. Local own-source revenue grew about a the same rate, from a low of 4.6 percent of GDP in 1979 to a high of 6.1 percent in 2008. Transfers from the federal government varied between 2.3 percent of GDP in 1989 and 3.6 percent of GDP in 2004; it stood at 3.4% of GDP in 2008.