link for full story http://hosted.ap.org/dynamic/stories/U/US_WEALTH_GAP_STATE_REVENUE?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT
US WEALTH GAP PUTTING THE SQUEEZE ON STATE REVENUE
Republican lawmakers in Georgia are pushing to replace that state’s income tax with an expanded sales tax. State Sen. Judson Hill disputes the view, held by many economists, that the wealth gap dampens economic growth. The Republican lawmaker argued that some “of these individuals at higher incomes will hire more people and create new companies, which will provide opportunity for everybody at every income level.”
Across all states, sales taxes account for 30.1 percent of all state revenue, according to the National Conference of State Legislatures. Personal income taxes make up 36.6 percent. The rest comes from other sources, such as taxes on fuel, alcohol and cigarettes.
As consumers have spent more online and on untaxed services, many states have tried to tax items like Netflix subscriptions and iTunes downloads. Washington state now taxes services at dating centers, tanning salons and Turkish baths.
Kim Rueben, a senior fellow at the Urban Institute, said the rise of untaxed purchases might have squeezed state revenue even if income inequality hadn’t widened.
"Sales taxes are being eroded by the fact that we’re moving to a services economy, and people are buying far more on the Internet," she said.
Research by Lucy Dadayan, a senior policy analyst at the Nelson A. Rockefeller Institute of Government, notes that income tax collections have become more volatile from year to year, making it harder for states to plan budgets, provide services and launch programs. She endorses an overhaul of state tax codes to produce a more balanced revenue flow.
But S&P says its findings suggest that the wealth gap derives from many factors and that state tax-code revisions don’t fully address the consequences.
"Changes to state fiscal policy alone won’t likely fix what’s wrong," S&P concludes.