US State and Local Government Revenue History

A Century of State and Local Taxes

State taxes have exploded in the 20th century.

At the start of the 20th century, state government revenue stood at about 0.8 percent of GDP. It expanded briskly in the 1920s, reaching 2.3 percent of GDP in 1929. State revenue exploded to 4.2 percent of GDP in 1933 and then increased to 5.4 percent of GDP in 1939 before falling back to a low of 3.1 percent in 1944 during World War II.

At the start of the 20th century, local government revenue stood at about 3.8 percent of GDP. It expanded briskly in the 1920s, breaching 6 percent of GDP in 1927. Local revenue exploded to 9.2 percent of GDP in 1933 before declining to a low of 3.0 percent in 1944 in the middle of World War II.

Recent State and Local Revenue

State and local revenue has increased slightly in recent years, subject to fluctuations in returns on employee pension funds.

In 1985 state government revenue stood at 8.0 percent of GDP and local government revenue stood at 6.1 percent. Two decades later, in 2007, state revenue had grown to 10.8 percent and local revenue had grown more modestly to 7.14 percent. But the two financial crises of the early 21st century knocked a temporary hole in state revenue, dropping it to 6.9 percent of GDP in 2002 after the 2000-01 bear market, and to 4.4 percent of GDP in 2009 after the Crash of 2008. Local revenue was not much affected by the market downturns. Local revenue started the 21st century at 6.7 percent of GDP in 2001 and reached 7.5 percent of GDP in 2011. State revenue in 2023, the latest reporting year, was 8.4 percent GDP. Local revenue in 2023, the latest reporting year, was 6.0 percent GDP.

Trends in State Revenue by Type

In the last century states have diversified their sources of revenue.

Back at the beginning of the 20th century, most state revenue came from ad-valorem taxes like property and sales taxes. About 15 percent of tax revenue came from fees and charges. By the end of the 1920s the share of ad-valorem and fees had been reduced by the introduction of income taxes and social insurance taxes.

After the interruption of World War II, revenue in 1950 divided up as 58% for ad-valorem taxes, 8 percent fees and charges, 7% business and other revenue, 11.4% income taxes, and 16 percent social insurance taxes (including employee pension contributions).

Chart Key:
- ad-valorem taxes
- fees and charges
- business and other revenue
- income tax
- social insurance taxes

For the next half century, ad-valorem taxes continued to decline, and income and social insurance taxes expanded. In 2000 ad-valorem taxes stood at 32% of total revenue, fees and charges at 9%, business and other revenue at 9%, incomes taxes at 23% of total, and social insurance taxes (including pension contributions and income) at 26%.

In recent years, the share of ad-valorem taxes have mildly declined and the share of social insurance taxes (including pension fund contributions and income) have increased from 20% to about 24% of revenue. The stock market downturns in 2000-01 and 2008-09 caused major losses for state employee pension funds. In 2009 the pension fund loss was greater than all other social insurance tax revenue.

Trends in Local Revenue by Type

In the 20th century local governments reduced reliance on ad-valorem taxes.

Prior to World War II, local government revenue from ad-valorem taxes yielded about 80% of total local revenue, with fees and charges and business revenue yielding the remaining 20%.

In the post World War II period, local revenue breakdown in 1950 was ad-valorem at 68%, fees and charges at 14%, business and other revenue (e.g., liquor stores, utilities, and transit) at 16%, income taxes at 0.6% and social insurance (including employee pensions) at 1.6%.

By 2000 ad-valorem taxes had shrunk to 47% of total revenue, fees and charges had increased to 21%, business and other revenue had increased to 23%, incomes taxes to 3.1%, and social insurance (including pension contributions and income) to 6.6%.

In recent decades the share of local revenue from different sources has remained fairly constant. In 2005 ad-valorem taxes like property taxes and sales taxes, stood at 49%, fees and charges at 22%, business and other revenue at 20%, income tax at 3% and social insurance at 5.5%. In 2015 ad-valorem taxes are expected to be 49.6% of revenue, fees and charges 23.5% revenue, business and other revenue at 20% revenue, and social insurance taxes at 3.7% revenue.

The notch that appears between 1991 and 1992 reflects recategorization of data with the new detailed data series from the US Census Bureau that start in 1992. The spike shown for 2009 reflects losses experienced by local employee pension plans in the Crash of 2008.