Tuesday, September 16, 2014

S&P Reports That Income Inequality Has Reduced State Tax Revenue

Many states have been forced to reduce spending on public goods such as education in response to declining tax revenue.  This report by S&P argues that declining state tax revenues are partly explained by growth in income inequality.  The sales tax and the income are the largest sources of state tax revenue.  The share of income to the top 1% has doubled over the last few decades.  That implies a lower share of income to the bottom 99% which spends most of their income.  That has reduced revenues from the sales tax.  Many states have also attempted to promote growth by reducing taxes.  That has not had the desired effect on growth.

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