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 $2.45 trillion in 2010. One quarter of this, or $624 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, the composition has changed: relatively less now comes from property taxes and relatively more is from charges and miscellaneous revenues (see figure 1). The American Recovery Investment Act of 2009 created a sharp uptick in the amount of general revenue coming as transfers from the federal government in 2009 and 2010, but that maount is expected to drop in coming years.
- At $609 billion, charges and miscellaneous revenues were the largest source of state and local governments’ own-source revenue in 2010. Collections in 2010 peaked made up 24 percent of general revenue, an 8 percentage point increase since 1977..
- Property tax revenues have gone from providing the largest share of state and local general revenues in 1977 to providing the third largest in 2010, with transfers from the federal government and charges and miscellaneous revenues providing more. Property tax revenues decreased as a share of general revenues from 22 percent of general revenue in 1977 to a trough of just 16 percent in 2001 and then increasing to about 18 percent in 2010. The decline occurred mostly in the 1970s and early 80s, and was largely offset by the growth of charges and miscellaneous revenues. The increased share in revenues from property taxes from 2008 to 2009 was largely due to declines in other taxes caused by the “Great Recession” that ended in 2009, while property taxes only recently declined..
- Together, general and selective sales taxes provided the fourth largest share of state and local general revenue in 2010 (after transfers from the federal government, charges and miscellaneous revenues, and property taxes), totaling $431 billion, although their share of general revenue declined from 21 percent in 1977 to 17 percent in 2010. Selective sales tax revenue accounted for nearly this entire decline, falling from 9 percent in 1977 to 6 percent in 2010, while general sales tax varied between 11 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 10 percent of all revenues in 1977 to a peak of 14 percent in 2001 at the end of the 1990s boom before falling back to 11 percent in 2003. Personal income taxes then began increasing steadily through 2008, when they were 13 percent of general revenues and totaled $305 billion. By 2010, they had fallen to $260 billion, or 10 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 17.4 percent in 2009. Revenues decreased slightly in 2010 to 17.3 percent of GDP.
- 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 increased 27 percent between 1977 and 2008 from 5.9 percent of GDP to 7.5 percent. The Great Recession has caused a slight drop in state own-source revenues to 6.8 percent of GDP in 2010. Local own-source revenue grew at about the same rate as state own-source revenue, from a low of 4.6 percent of GDP in 1979 to a high of 6.1 percent in 2010. Transfers from the federal government varied between 2.3 percent of GDP in 1989 and 3.6 percent of GDP in 2004 until the American Recovery and Reinvestment Act of 2009 brought it up to 4.3 percent in 2010.