New Normal? The Declining Relative Importance of State Taxes

David Sjoquist

Center for State and Local Finance Working Paper Series from Andrew Young School of Policy Studies, Georgia State University

Abstract: The Great Recession’s substantial effect on state revenue has been well documented. State tax revenue decreased: By 2017, state tax revenue as a percentage of income was just 5.79 percent, which is 9 percent less than in 2007 and 4.66 percent less than in 2013. An obvious question is, why has state tax revenue as a percentage of income not returned to its pre-Great Recession level? There are two potential reasons: Either economic growth has not increased the tax base sufficiently or policymakers have not raised taxes sufficiently. This paper explores this question and whether the post-2008 period could be a “new normal.” I first discuss the trend in total state taxes as a percentage of income. I then discuss four specific taxes to provide a framework for discussing policy decisions.

Pages: 15 pages
Date: 2019-03
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Persistent link: https://EconPapers.repec.org/RePEc:ays:cslfwp:cslf1903

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