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State Revenue Options for Advancing Equity and Prosperity

As they continue to address COVID-19’s lingering health and economic challenges, states can chart a course toward more prosperous, equitable economies and more widely shared well-being. To do so, they need strong and stable finances that are built on a foundation of sufficient tax revenues. This CBPP tool seeks to help policymakers, advocates, and others better understand many of the various revenue-raising options available in their state. It also has some basic guidance and direction to more reading about things to consider when evaluating each choice.

States need adequate revenues both in good times, when they can pay for bold, proactive investments that knock down long-standing barriers to opportunity and foster more broadly shared growth, and in bad times such as recessions, natural disasters, and public health emergencies, when they can help families and small businesses stay afloat and limit short-term harm, especially for low-income people, communities of color, and others who are most directly impacted.

But state and local policymakers, plus the groups and individuals who inform and influence them, don’t always have detailed knowledge of the revenue options available in their state and the pros and cons of each — such as how much revenue different policies might raise, whether a tax will fall more on families with low incomes or people at the top, or if there may be legal or administrative considerations.

To offer some direction, we provide basic details and guidance on states’ range of options, divided into six categories: Personal Income Taxes, Sales Tax, Corporate and Business Taxes, Tax Expenditures, Excise Taxes, Wealth Taxes, and Other Taxes. To be clear, they don’t make up a single plan; no state would want to adopt all of these revenue raisers at the same time. And some of them, such as raising sales tax rates or enacting targeted fees on things like sugary beverages or carbon, have noteworthy drawbacks as well as advantages so should be pursued only in certain circumstances — typically as part of a broader, balanced package of revenue reforms that also prioritizes issues of equity and fairness.

Lastly, while this tool presents as detailed a national scan as possible, two caveats are worth noting. One, it isn’t always completely clear whether a particular state has already adopted a particular policy; some options might be open to differing legal or administrative interpretations or another state-specific gray area, for example. And two, it is difficult to keep a resource of this scope completely up to date across all states. State and local stakeholders should therefore check with relevant officials, policy experts, and (in some cases) lawyers with deep state-specific knowledge before proceeding.

For questions or feedback on this tool, please contact Wesley Tharpe, Deputy Director of State Policy Research, at [email protected].