Opinion Editorial

Monday, April 26, 1999  

States Are Raising Taxes Rapidly

Frustrated in their efforts to cut taxes at the federal level, many activists are now turning their attention to the states, where they believe prospects for tax-cutting are better. According to new government reports, they have their work cut out for them. Taxes are now rising as rapidly at the state level as at the federal, with double-digit tax increases last year in some states. According to the Census Bureau, the 50 states collected more than $475 billion last year in various taxes and fees, or $1,762 for every man, woman and child in the U.S.

  • This was an increase of 7 percent over 1997, even though the national economy increased only 4.9 percent in 1998.

  • Overall, individual income taxes increased by 11 percent, with general sales taxes rising 6 percent.

  • Among the states, Utah led the pack with a total tax increase of 27 percent, followed by Maine (+17 percent), Connecticut (+15 percent) and Delaware (+14 percent).

  • On a per capita basis, Connecticut is the most heavily taxed state, with its citizens paying $2,869 each in 1998.

  • Nine other states also had per capita state taxes over $2,000, including Delaware ($2,665), Hawaii ($2,662), Minnesota ($2,434) and Massachusetts ($2,357).

  • The lowest taxed state was New Hampshire ($851), followed by South Dakota ($1,129), Texas ($1,246), Tennessee ($1,288) and Alabama ($1,318).

While aggregate and per capita figures are useful in comparing state tax burdens, they do not tell the whole story. High-tax states like Connecticut and Massachusetts, for example, also have high incomes, while they are much lower in some low-tax states like South Dakota and Alabama. A better method of comparison would look at taxes raised as a share of the state's taxable capacity. A new Treasury Department study does exactly this.

According to the Treasury study, the most heavily taxed "state" is the District of Columbia. Compared to the 50 states, it raises 58 percent more revenue relative to its taxable resources. The most heavily taxed state, Connecticut, by contrast, is only 40 percent above the national norm. The figure lists the top 10 most heavily taxed states based on the Treasury methodology (see figure). Interestingly, New Hampshire makes the list despite having the lowest per capita tax collection, because it is taxing its citizens relatively heavily given their incomes and other taxable resources.

The Treasury lists West Virginia as being the lowest taxed state, with its citizens being taxed 25 percent less than the average for all states relative to their taxable capacity. On this basis, the next lowest taxed states are Montana, Oklahoma, Arkansas and Alabama.

What these reports make clear is that the need for tax reduction is as great at the state as the federal level. And for some states, the need is imperative.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, April 26, 1999.

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