DISTRIBUTION OF STATE AND LOCAL GOVERNMENT REVENUE BY SOURCE

Transcription

1 September 2007, Number 165 DISTRIBUTION OF STATE AND LOCAL GOVERNMENT REVENUE BY SOURCE Introduction This Policy Brief compares the reliance on various revenue sources across Georgia, its surrounding states (Alabama, Florida, North Carolina, South Carolina, and Tennessee), Colorado, Texas, and Virginia. Revenue sources at the combined state and local level, at the state level, and at the local level are considered. Revenue is measured by own source general revenues (i.e. excluded are intergovernmental grants, and revenues from liquor stores, utilities, and trust funds) obtained from the U.S. Bureau of the Census. The data are for , the most recent available. Revenue Shares A. Own Source Revenue Table 1 presents the share of taxes in the total general revenue of state governments, local governments, and state and local governments combined for the U.S. and for each of the nine comparison states. (The Appendix contains detailed tables.) The following discussion outlines main differences observed across the nine states. State and Local Governments. Across the U.S., almost 70 percent of the combined state and local government own source revenue comes from taxes, while the remaining 30 percent comes from charges and miscellaneous revenue. The nine states considered here rely less on taxes than the U.S. average. Georgia s share of taxes is very similar to the U.S. average, but above that for the other states. There is substantial similarity in the states relative reliance on taxes, with the exception of Alabama and South Carolina, where taxes account for about 58 percent of total revenue. State Governments. On average, almost three quarters of state government revenue come from taxes in the U.S. For the states considered here there is wider variation in state government relative reliance on taxes than for state and local governments combined. In Georgia, taxes are 78 percent of the state government revenue, which is slightly above the U.S. average and the other states, with the exception of North Carolina. Local Governments. Across the U.S., about 63 percent of local government revenue comes from taxes. For most of states considered here local governments rely less on taxes than the U.S. average, with the exception of Texas and Virginia.

2 For most of the nine states, local governments rely less on taxes than do state governments. There is even greater variation across states in local governments reliance on taxes, with a range from 45.9 percent to 70.7 percent. Georgia s local government reliance on taxes in slightly below the national average. B. Taxes Table 2 considers the property tax, the general sales tax, and the individual income tax as a share of own source revenue and of tax revenue of state and local governments combined. For the U.S., these three taxes account for 77 percent of tax revenue. Property Taxes. Property taxes are a significant revenue source in all states in our sample, but there is a lot of variation. Property taxes as a share of combined state and local government own source revenues were only 9 percent in Alabama, while they were above 29 percent in Texas. Property taxes were 21 percent of combined state and local government own source revenues in Georgia. This was about the same as the national average, and slightly above the average for the nine comparison states. (Property taxes are a local revenue source; state governments for all of the nine states get less than 2 percent of their own source revenue from property taxes.) General Sales Taxes. Sales and gross receipts taxes are the most important source of revenue for most states. General sales taxes amounted to 10 percent of combined state and local government own source revenues in Virginia, while they were three times that amount (31 percent) in Tennessee. Tennessee, Florida (where general sales taxes contributed 22 percent), and Texas (20 percent) do not have a general income tax, so the state governments of those states rely more heavily on sales taxes. For Georgia, general sales taxes contributed 19 percent to combined state and local government revenues, and 28 percent of total taxes. These are slightly above the U.S. averages, and generally above the comparison states that have income taxes. One reason Georgia s sales tax share of own source revenue is above the national average is the reliance of local governments in Georgia on sales taxes. Over 12 percent of local government own source revenue in Georgia is from sales taxes, compared to 7 percent for the nation. Individual Income Taxes. There is wide variation in the share of the combined state and local government accounted for by the individual income tax. As noted above, Texas and Florida impose no individual income tax, while the individual income tax in Tennessee is limited to dividends and interest income only. In Georgia, the individual income tax was about 19 percent of combined own source revenues of state and local governments and 27 percent of total tax revenue. These shares are above the national averages of 15 percent and 22 percent, respectively, and generally above the share for the comparison states. Personal income tax revenue is a state level revenue source, none of the local governments in the nine comparison states has a personal income tax. Georgia s state government collects 36 percent of its own source revenue from the individual income tax, which is well above the national average of 25 percent. However, that share is comparable to the share for Colorado, North Carolina and Virginia. C. Selective Sales Taxes For the U.S., 7.6 percent of state and local government own source revenue, and 11 percent of tax revenue, is derived from selective sales taxes (Table 3). Most selective sales tax revenues come from the taxation of motor fuel, public utility services, and taxation of tobacco products. Selective sales taxes were the highest share of the combined state and local government revenue in Alabama (nearly 11 percent), while they were the lowest in Colorado (little over 5 percent). Georgia s reliance on selective sales taxes is less than the U.S. average and less than all but two of the comparison states. This is also the case just for state government revenue, as revenue from selective sales taxes is more important for state governments than for local governments. For the states we considered, motor fuel taxes ranged from 2.2 percent (in Virginia) to 3.4 percent (in North Carolina and Tennessee) of the combined state and local government revenue, not a large difference. Among the comparison states local governments do not generate motor fuel revenue except in Alabama and Florida.

3 Summary The analysis of the composition of own source revenue illustrates that there are differences across states, and these differences are sometimes large. However, there is no optimal mix of revenue for a given state. The best mix of revenue for a state depends on many factors. For example, if the state desires local control of spending, then property taxes are likely to be of more importance. If citizens of a state prefer a more progressive tax structure, then that state will likely rely more heavily on the income tax and less on the sales tax. If citizens believe that the beneficiaries of public services should pay for them, then charges will be relatively more important. One way to summarize the differences in the revenue structures is to compare each state s revenue structure to some norm, which we took as the U.S. average. This is clearly arbitrary, but is it does reflect the mix of revenue sources across all states. We considered nine revenue categories: property tax, general sales tax, selective sales taxes, individual income tax, corporate income tax, motor vehicle license, other taxes, current charges, and miscellaneous revenue. For each of these categories we calculated the absolute value of the difference between the state s share and the U.S. average share using the data in Appendix Table A1, and then summed these across all nine categories. We call this the Comparison Index (CI); it is the total percent deviation from the norm. A CI value of zero means the state has a revenue structure that is identical to the U.S. average. The larger the value of CI, the more the state differs from the U.S. average. The values of CI are presented in Table 4. Other than Colorado, among the nine states Georgia has a revenue structure that most closely matches the U.S. average. States without income taxes (Florida, Tennessee, and Texas) have much higher values of the Comparison Index. ABOUT THE AUTHOR Nikola Tasić is a research associate in the Fiscal Research Center of the Andrew Young School of Policy Studies at Georgia State University and is currently finishing his Ph.D. in Economics, writing on the effects of financial development on economic growth. His research interests include state and local public finance reforms in transition countries, intergovernmental transfers, and financial development. Tasić holds B.S. in economics from San Jose State University and M.A. in economics from Georgia State University. ABOUT FRC The Fiscal Research Center provides nonpartisan research, technical assistance, and education in the evaluation and design of state and local fiscal and economic policy, including both tax and expenditure issues. The Center s mission is to promote development of sound public policy and public understanding of issues of concern to state and local governments. The Fiscal Research Center (FRC) was established in 1995 in order to provide a stronger research foundation for setting fiscal policy for state and local governments and for better-informed decision making. The FRC, one of several prominent policy research centers and academic departments housed in the School of Policy Studies, has a full-time staff and affiliated faculty from throughout Georgia State University and elsewhere who lead the research efforts in many organized projects. The FRC maintains a position of neutrality on public policy issues in order to safeguard the academic freedom of authors. Thus, interpretations or conclusions in FRC publications should be understood to be solely those of the author. For more information on the Fiscal Research Center, call RECENT PUBLICATIONS Distribution of State and Local Government Revenue by Source. This brief compares the reliance on various revenue sources across Georgia compared with eight other states. (September 2007) Tax Revenue Stability of Replacing the Property Tax with a Sales Tax. This policy brief discusses the implications for tax revenue stability of proposals that would replace the property tax with an increased sales tax. (September 2007) Potential Impact of the Great Plan on Georgia s Tax Administration. This brief examines local property tax and sales tax implications for tax administrators. (August 2007) Is a State VAT the Answer? What s the Question. This report provides an overview of the differences between the retail sales tax and a value added tax and the potential use of a VAT in U.S. states. (August 2007) Budget Stabilization Funds: A Cross-State Comparison. This brief provides an overview of budget stabilization fund policies across the states. (August 2007) Four Options for Eliminating Property Taxes and Funding Local Governments. This policy brief provides an overview of financing options in the case of substantially reduced property tax revenues for local governments in Georgia. (August 2007) For a free copy of any of the publications listed, call the Fiscal Research Center at 404/ , or fax us at 404/ All reports are available on our webpage at: frc.gsu.edu.

4 TABLE 1: TAXES AS A SHARE OF TOTAL REVENUE, State and Local Governments State Governments Local governments United States Total 69.3% 74.2% 63.2% Alabama 58.0% 66.7% 45.9% Colorado 63.5% 67.5% 60.1% Florida 65.8% 77.4% 55.1% Georgia 69.4% 77.6% 60.8% North Carolina 68.6% 79.5% 53.0% South Carolina 57.5% 63.3% 50.0% Tennessee 65.0% 74.4% 53.7% Texas 66.9% 66.4% 67.4% Virginia 68.1% 66.3% 70.7% TABLE 2: MAJOR TAXES AS SHARE OF REVENUE OF STATE AND LOCAL GOVERNMENTS, Property Tax General Sales Tax Individual Income Tax Share of Share of Share of Own Source Revenue Share of Tax Revenue Own Source Revenue Share of Tax Revenue Own Source Revenue Share of Tax Revenue United States Total 21.2% 30.6% 16.6% 24.0% 15.2% 22.0% Alabama 8.9% 15.3% 17.5% 30.2% 13.1% 22.6% Colorado 20.0% 31.5% 17.8% 28.0% 15.3% 24.0% Florida 22.4% 34.1% 22.1% 33.5% 0.0% 0.0% Georgia 20.7% 29.9% 19.3% 27.9% 18.5% 26.7% North Carolina 16.2% 23.6% 15.7% 22.9% 21.2% 30.9% South Carolina 18.2% 31.7% 14.8% 25.7% 13.1% 22.8% Tennessee 15.8% 24.3% 30.8% 47.3% 0.6% 1.0% Texas 29.3% 43.8% 19.6% 29.3% 0.0% 0.0% Virginia 20.7% 30.3% 10.0% 14.6% 20.6% 30.2%

5 TABLE 3: SELECTIVE SALES TAXES AS SHARE OF REVENUE OF STATE AND LOCAL GOVERNMENTS All Selective Sales Taxes Motor Fuel Tobacco Products Public Utilities United States Total 7.6% 2.3% 0.8% 1.4% Alabama 10.9% 3.1% 0.9% 3.4% Colorado 5.3% 2.4% 0.5% 0.6% Florida 10.7% 3.0% 0.5% 4.3% Georgia 6.2% 2.3% 0.6% 0.6% North Carolina 8.0% 3.4% 0.1% 0.8% South Carolina 5.8% 2.4% 0.1% 0.6% Tennessee 7.4% 3.4% 0.5% 0.2% Texas 10.5% 2.8% 0.6% 1.7% Virginia 8.8% 2.2% 0.4% 1.8% TABLE 4. VALUE OF THE COMPARISON INDEX Comparison Index Alabama 33.9 Colorado 14.0 Florida 32.0 Georgia 14.8 North Carolina 21.4 South Carolina 24.2 Tennessee 40.4 Texas 35.9 Virginia 17.2

6 TABLE A1. STATE AND LOCAL GENERAL REVENUE BY SOURCE: TOTAL AND SHARES ---United States Total Alabama Colorado Florida Georgia Taxes 1,096, % 11, % 15, % 59, % 27, % Property 335, % 1, % 4, % 20, % 8, % Sales and gross receipts 383, % 5, % 5, % 29, % 10, % General sales 262, % 3, % 4, % 20, % 7, % Selective sales 120, % 2, % 1, % 9, % 2, % Motor fuel 35, % % % 2, % % Alcoholic beverage 5, % % % % % Tobacco products 13, % % % % % Public utilities 22, % % % 3, % % Other selective sales 43, % % % 1, % % Individual income 240, % 2, % 3, % % 7, % Corporate income 43, % % % 1, % % Motor vehicle license 19, % % % 1, % % Other taxes 73, % % % 6, % % Charges and misc. general revenue 486, % 8, % 9, % 31, % 12, % Current charges 308, % 6, % 5, % 18, % 8, % Education 89, % 1, % 1, % 3, % 2, % Institutions of higher education 75, % 1, % 1, % 2, % 1, % School lunch sales (gross) 6, % % % % % Hospitals 79, % 3, % 1, % 4, % 3, % Highways 10, % % % % % Air transportation (airports) 14, % % % 1, % % Parking facilities 1, % % % % % Sea and inland port facilities 3, % % % % % Natural resources 3, % % % % % Parks and recreation 7, % % % % % Housing and comm. dev. 4, % % % % % Sewerage 31, % % % 1, % % Solid waste management 12, % % % 1, % % Other charges 49, % % % 3, % % Miscellaneous general revenue 178, % 1, % 3, % 12, % 3, % Interest earnings 58, % % 1, % 3, % % Special assessments 6, % % % 1, % % Sale of property 2, % % % % % Other general revenue 110, % 1, % 1, % 7, % 2, % General revenue from own sources 1,582, % 20, % 24, % 90, % 39, %

7 TABLE A1 (CONTINUED). STATE AND LOCAL GENERAL REVENUE BY SOURCE: TOTAL AND SHARES ---North Carolina-- ---South Carolina Tennessee Texas Virginia Taxes 27, % 11, % 15, % 69, % 27, % Property 6, % 3, % 3, % 30, % 8, % Sales and gross receipts 9, % 4, % 9, % 31, % 7, % General sales 6, % 3, % 7, % 20, % 4, % Selective sales 3, % 1, % 1, % 10, % 3, % Motor fuel 1, % % % 2, % % Alcoholic beverage % % % % % Tobacco products % % % % % Public utilities % % % 1, % % Other selective sales 1, % % % 4, % 1, % Individual income 8, % 2, % % % 8, % Corporate income 1, % % % % % Motor vehicle license % % % 1, % % Other taxes 1, % % 1, % 6, % 2, % Charges and misc. general revenue 12, % 8, % 8, % 34, % 12, % Current charges 9, % 6, % 5, % 20, % 8, % Education 2, % 1, % 1, % 6, % 2, % Institutions of higher education 2, % 1, % 1, % 5, % 2, % School lunch sales (gross) % % % % % Hospitals 3, % 3, % 2, % 6, % 2, % Highways % % % % % Air transportation (airports) % % % 1, % % Parking facilities % % % % % Sea and inland port facilities % % % % % Natural resources % % % % % Parks and recreation % % % % % Housing and comm. dev % % % % % Sewerage 1, % % % 2, % % Solid waste management % % % % % Other charges 1, % % 1, % 2, % 1, % Miscellaneous general revenue 3, % 2, % 2, % 13, % 4, % Interest earnings 1, % % % 5, % 1, % Special assessments % % % % % Sale of property % % % % % Other general revenue 1, % 1, % 2, % 8, % 2, % General revenue from own sources 39, % 20, % 24, % 103, % 40, %

8 TABLE A2. STATE GENERAL REVENUE BY SOURCE: TOTAL AND SHARES --United States Total Alabama Colorado Florida Georgia Taxes 648, % 7, % 7, % 33, % 15, % Property 11, % % % % % Sales and gross receipts 311, % 3, % 3, % 25, % 6, % General sales 212, % 2, % 2, % 19, % 5, % Selective sales 98, % 1, % 1, % 6, % 1, % Motor fuel 34, % % % 2, % % Alcoholic beverage 4, % % % % % Tobacco products 12, % % % % % Public utilities 11, % % % 1, % % Other selective sales 35, % % % 1, % % Individual income 220, % 2, % 3, % % 7, % Corporate income 38, % % % 1, % % Motor vehicle license 18, % % % 1, % % Other taxes 48, % % % 5, % % Charges and misc. general revenue 225, % 3, % 3, % 9, % 4, % Current charges 122, % 2, % 1, % 4, % 2, % Education 68, % 1, % 1, % 1, % 1, % Institutions of higher education 67, % 1, % 1, % 1, % 1, % School lunch sales (gross) % % % % % Hospitals 29, % % % % % Highways 6, % % % % % Air transportation (airports) 1, % % % % % Parking facilities % % % % % Sea and inland port facilities % % % % % Natural resources 2, % % % % % Parks and recreation 1, % % % % % Housing and comm. dev % % % % % Sewerage % % % % % Solid waste management % % % % % Other charges 12, % % % 1, % % Miscellaneous general revenue 102, % 1, % 1, % 5, % 2, % Interest earnings 31, % % % 1, % % Special assessments % % % % % Sale of property 1, % % % % % Other general revenue 69, % % 1, % 4, % 1, % General revenue from own sources 873, % 11, % 11, % 43, % 20, %

9 TABLE A2 (CONTINUED). STATE GENERAL REVENUE BY SOURCE: TOTAL AND SHARES -----North Carolina South Carolina Tennessee Texas Virginia Taxes 18, % 7, % 10, % 32, % 15, % Property % % % % % Sales and gross receipts 7, % 3, % 7, % 25, % 5, % General sales 4, % 2, % 6, % 16, % 3, % Selective sales 3, % % 1, % 9, % 2, % Motor fuel 1, % % % 2, % % Alcoholic beverage % % % % % Tobacco products % % % % % Public utilities % % % % % Other selective sales 1, % % % 4, % 1, % Individual income 8, % 2, % % % 8, % Corporate income 1, % % % % % Motor vehicle license % % % 1, % % Other taxes % % 1, % 5, % 1, % Charges and misc. general revenue 4, % 4, % 3, % 16, % 8, % Current charges 3, % 2, % 1, % 7, % 5, % Education 2, % 1, % 1, % 4, % 2, % Institutions of higher education 2, % 1, % 1, % 4, % 2, % School lunch sales (gross) % % % % % Hospitals % 1, % % 2, % 1, % Highways % % % % % Air transportation (airports) % % % % % Parking facilities % % % % % Sea and inland port facilities % % % % % Natural resources % % % % % Parks and recreation % % % % % Housing and comm. dev % % % % % Sewerage % % % % % Solid waste management % % % % % Other charges % % % % % Miscellaneous general revenue 1, % 1, % 1, % 8, % 3, % Interest earnings % % % 2, % % Special assessments % % % % % Sale of property % % % % % Other general revenue % 1, % 1, % 5, % 2, % General revenue from own sources 23, % 11, % 13, % 49, % 24, %

10 TABLE A3. LOCAL GENERAL REVENUE BY SOURCE: TOTAL AND SHARES --United States Total Alabama Colorado Florida Georgia Taxes 448, % 3, % 8, % 25, % 11, % Property 324, % 1, % 4, % 20, % 8, % Sales and gross receipts 71, % 1, % 2, % 4, % 3, % General sales 50, % 1, % 2, % 1, % 2, % Selective sales 21, % % % 3, % % Motor fuel 1, % % % % % Alcoholic beverage % % % % % Tobacco products % % % % % Public utilities 11, % % % 2, % % Other selective sales 8, % % % % % Individual income 20, % % % % % Corporate income 4, % % % % % Motor vehicle license 1, % % % % % Other taxes 25, % % % 1, % % Charges and misc. general revenue 260, % 4, % 5, % 21, % 7, % Current charges 185, % 3, % 3, % 14, % 5, % Education 21, % % % 1, % % Institutions of higher education 8, % % % % % School lunch sales (gross) 6, % % % % % Hospitals 50, % 2, % % 4, % 2, % Highways 3, % % % % % Air transportation (airports) 13, % % % 1, % % Parking facilities 1, % % % % % Sea and inland port facilities 2, % % % % % Natural resources 1, % % % % % Parks and recreation 6, % % % % % Housing and comm. dev. 4, % % % % % Sewerage 31, % % % 1, % % Solid waste management 12, % % % 1, % % Other charges 37, % % % 2, % % Miscellaneous general revenue 75, % % 1, % 6, % 1, % Interest earnings 26, % % % 2, % % Special assessments 5, % % % 1, % % Sale of property 1, % % % % % Other general revenue 40, % % % 3, % 1, % General revenue from own sources 708, % 8, % 13, % 47, % 19, %

11 TABLE A3 (CONTINUED). LOCAL GENERAL REVENUE BY SOURCE: TOTAL AND SHARES -----North Carolina South Carolina Tennessee Texas Virginia Taxes 8, % 4, % 5, % 36, % 11, % Property 6, % 3, % 3, % 30, % 8, % Sales and gross receipts 1, % % 1, % 5, % 2, % General sales 1, % % 1, % 3, % % Selective sales % % % 1, % 1, % Motor fuel % % % % % Alcoholic beverage % % % % % Tobacco products % % % % % Public utilities % % % % % Other selective sales % % % % % Individual income % % % % % Corporate income % % % % % Motor vehicle license % % % % % Other taxes % % % % 1, % Charges and misc. general revenue 7, % 4, % 5, % 17, % 4, % Current charges 6, % 3, % 4, % 12, % 3, % Education % % % 1, % % Institutions of higher education % % % % % School lunch sales (gross) % % % % % Hospitals 2, % 2, % 2, % 3, % % Highways % % % % % Air transportation (airports) % % % 1, % % Parking facilities % % % % % Sea and inland port facilities % % % % % Natural resources % % % % % Parks and recreation % % % % % Housing and comm. dev % % % % % Sewerage 1, % % % 2, % % Solid waste management % % % % % Other charges % % % 1, % % Miscellaneous general revenue 1, % % 1, % 4, % 1, % Interest earnings % % % 2, % % Special assessments % % % % % Sale of property % % % % % Other general revenue % % % 2, % % General revenue from own sources 16, % 8, % 11, % 53, % 16, %

12 Document Metadata This document was retrieved from IssueLab - a service of the Foundation Center, Date information used to create this page was last modified: Date document archived: Date this page generated to accompany file download: IssueLab Permalink: RevenueSources of State and Local Governments - Brief Publisher(s): Fiscal Research Center of the Andrew Young School of Policy Studies Author(s): Nikola Tasic Date Published: Rights: Copyright 2007 Fiscal Research Center of the Andrew Young School of Policy Studies Subject(s): Community and Economic Development; Government Reform