To What Extent Does Your State Rely on Individual Income Taxes?

by Janelle Cammenga, Tax Foundation, February 10, 2021

Sources of state revenue have come under closer scrutiny in light of the impact of the coronavirus outbreak, as different tax types have differing volatility and economic impact.

This week’s map looks at what percentage of each state’s state and local tax collections is attributable to the individual income tax.

State and localities rely heavily on the individual income tax, which comprise over 24 percent of total U.S. state and local tax collections, just above the general sales tax (23 percent) and behind property taxes (31 percent), taking its place as the second largest source of state and local revenue.

Of all the states, Oregon and Maryland rely most heavily on individual income taxes, which account for over 42 percent and 37 percent of their total state and local tax collections respectively.

It is generally true that income taxes are more volatile than consumption taxes in an economic downturn, as income itself tends to fluctuate more than consumption.

Even in a global pandemic, when social distancing restrictions and the nature of pandemics caused an initial drop in consumption, sales taxes have rebounded and returned to pre-pandemic levels, while income taxes—which have also rebounded—are still seeing some losses.

Volatility is not the only factor to consider. As we’ve pointed out in the past, a state’s combination of tax sources has implications for its revenue stability and economic growth. Income taxes tend to be more harmful to economic growth than consumption taxes and property taxes.

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