While a new report about income inequality and state budgets is receiving a great deal of attention, the most important question typically goes unasked: How much money do states need?
A report from credit-rating agency Standard & Poor’s suggests that a widening gap between the wealthiest Americans and the average Americans is adversely impacting state tax revenue. As the Associated Press explained: “Even as income for the affluent has accelerated, it’s barely kept pace with inflation for most others. That trend can mean a double-whammy for states: The wealthy often manage to shield much of their income from taxes. And they tend to spend less of it than others do, thereby limiting sales tax revenue.”
This trend is noteworthy in Washington, which is especially reliant upon sales tax by dint of having no state income tax. The S&P report demonstrates limited tax growth for the states that are most dependent upon sales tax, a list that includes Washington. The state sales tax is 6.5 percent, which accounts for 45 percent of the overall state budget. In addition, local municipalities may add their own sales tax on top of that figure.
Oregon, on the other hand, is especially dependant upon its state income tax, as there is no sales tax. Oregon relies upon income tax for nearly 70 percent of its state revenue — the highest figure in the country.