Do Increases in Tax Revenue Signal a Reviving Economy?

photo: Maui Now

Maybe, according to a recent state-by-state analysis of the state and local taxes businesses paid in FY 13.  The analysis, prepared by Ernst and Young for the Council on State Taxation (COST), found that overall, state and local business taxes increased 4.3% from the prior year, suggesting “relatively broad, yet still gradual, economic recovery.”  State and local business tax revenue increased 1.1% in Connecticut.

In absolute terms, nationally businesses paid close to $671 billion in state and local taxes in FY 13, constituting 4.7% of private sector gross state product (GSP).  They paid $7.6 billion in Connecticut state and local taxes, about 3.4% of private sector GSP.
Hmmm . . . Although businesses are helping to fill tax coffers, they “continue to pay more in state and local taxes than they receive in benefits on average,” Ernst and Young stated. “On average, businesses paid $3.26 for every dollar of government spending benefiting business, assuming that education spending does not benefit local businesses,” the report stated. If one assumes that half the education spending benefits such businesses, businesses still wind up “paying 20% more in taxes than the cost of state and local government spending benefiting business.” (In this study, the authors assigned health and human services benefits entirely to households and split police, fire, and highway infrastructure costs between households and businesses.)

According to COST president and executive director Douglas Lindholm, the study “allows policymakers to evaluate state and local business tax burdens beyond corporate income taxes, and provides a truer picture of business tax burdens than commonly perceived,” he stated.  

Here are some of the study’s key findings:

• Property tax revenues picked up 3.7% in FY 2013, after three straight years of growth rates below 1%. The property tax is still the largest state and local tax businesses pay, accounting for $242 billion or 36% of the total business tax contribution.  Connecticut businesses paid $2.3 billion in property taxes, 30% of total business taxes.
• State sales taxes on the goods and services businesses buy and the capital investments they make increased 3.8% while comparable local taxes remained flat. State and local sales taxes combined totaled almost $140 billion, almost 21% of total state and local business taxes. Connecticut businesses paid $1.4 billion in sales taxes, about 18% of total business taxes.
• State and local corporate income tax collections totaled $53 billion or 7.9% of the total business tax contribution. Connecticut businesses paid about $600 million in corporation business taxes, about 8% of total business taxes.
• Personal income taxes on pass-through business income totaled $36 billion, marking a 13% increase over FY 12. In Connecticut, pass-through businesses generated about $900 million in personal income taxes, almost 12% of total business taxes.