The Growth of Regressive Taxes

There is no national sales tax. Yet most of us pay quite a bit on sales taxes every day. This regressive tax is among the top two revenue sources for most states. Excise taxes are also large income sources. Since both kinds of tax are based on consumption, their impact is relatively more severe on the poor and middle class.

In Texas, nearly 80% of the state’s tax revenue is generated through sales and excise taxes. That’s over $20 billion! Yet state government’s fastest growing source of revenue is its most insidious- casino gambling and lotteries. Only 15 years ago, New Jersey and Nevada were the only states allowing legalized gambling. There are now 49 states where some form of gaming is legal and, every year, state legislatures approve new forms.

Texas does not yet have casinos. Yet its lottery today ranks with the franchise tax as the state’s fourth largest source of revenue. In 2003, lottery proceeds accounted for $1.4 billion. The Texas legislature has entertained bills to legalize casinos in the state. Were casinos to open here, revenue proceeds from gambling would expand dramatically.

In Connecticut, gambling revenue just surpassed the corporate income tax as the state’s third largest source of revenue. The regressive payroll tax is assuming a greater share of federal receipts. Workers fund social security benefits with payroll withholding on their first $87,900. With the rather significant decrease in income tax rates since 2001, the importance of payroll taxes has increased dramatically. Since 2000, payroll taxes have gone from 32.2% to 40.0 % of federal revenue.