State and Local Revenue Options for Advancing a Brighter Future
As states seek to chart a course toward a more prosperous, equitable, and sustainable future, they need strong and stable finances that are built on a foundation of healthy tax revenues. To advance those ends, 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 includes some basic guidance and direction to further reading for weighing respective pros and cons when evaluating each choice.
States need adequate revenues both in good times, when they can afford to strengthen support for things like schools, transportation infrastructure, and health services their people and communities need, and in bad times such as economic recessions, environmental disasters, and public health emergencies, when they can help families and small businesses stay afloat and limit short-term hardship, especially in communities that struggle to weather these crises because of systemic discrimination and underinvestment. They also need strong revenue sources — no matter the economic circumstances — to generate the funds states will need for bold, new investments to tackle long-standing inequities such as child poverty or emerging challenges such as our changing climate.
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 respective strengths and drawbacks of each — such as how much revenue different policies might raise, whether a tax will fall more on workers and families with low to moderate incomes or wealthy households and corporations, or if there may be legal or administrative considerations to account for. In some cases, policymakers may also be seeking insights for how to develop new revenue options, such as various levies designed to more effectively tax entrenched wealth or to help manage the transition from fossil fuels to cleaner energy sources.
To offer some direction, we provide basic details and guidance on states’ range of options, divided into seven categories: Personal Income Taxes, Wealth Taxes, Corporate and Business Taxes, Pollution Fees, Sales Taxes, Excise Taxes, and Tax Expenditures. To be clear, the resulting list of options doesn’t comprise a single plan; no state would want to adopt all of these revenue raisers at the same time. And some, such as raising sales tax rates, have noteworthy drawbacks and should only be pursued in certain circumstances. But they offer a menu of options for policymakers, advocates, and the public to more clearly understand the many different avenues for revenue states might pursue.
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, Senior Advisor for State Tax Policy, at [email protected].
