The state of state and local taxes
In addition to federal taxes, Americans are responsible for paying state and local sales, personal income and property taxes, and a variety of fees for the use of their cars, sewer systems and water systems. Although approximately 47 percent of the population pays no federal income tax, those people do contribute to public safety, education and welfare through their state and local taxes (and, it should be noted, also pay federal payroll taxes). Across the nation, sales taxes bring in about one-third of state revenues, personal income tax revenues bring in another third, and a variety of other taxes and fees make up the balance.
Rarely do you hear cries from the citizenry to have their taxes raised – usually you hear people lament that rates are too high. A recent Bloomberg slideshow listed aggregate tax rates by state but used data that did not include local tax rates. Many of the 1,256 comments on the slideshow pointed out that the information was wrong. In almost every comment that I read, people thought that their taxes were too high.
The response of state governments to their citizens’ cries for lower taxes has been ambivalent. While states decreased their sales taxes by $5.2 billion for 2012, they also increased personal income taxes by $3 billion, according to a National Conference of State Legislatures poll. There is a lot of variance among states in sales tax rates, though: Five states collect no state sales tax, and 13 states have an average local sales tax rate of zero. State and local governments are looking for additional revenue from every available source, but I predict that we will mainly see increases in income taxes for higher earners rather than increases to sales tax rates.