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Wither the State Sales Tax?

As hard hit as Georgia was by the Great Recession of 2007–09, the state’s economy was much larger in fiscal 2014 than in 2001. Georgia’s state gross domestic product (GDP) is up more than 14 percent over that time, adjusted for inflation, while real personal income is up more than 24 percent. Yet over that same period, Georgia’s revenue from the state sales and use tax is down 31 percent, inflation-adjusted. The decline in sales tax revenue relative to personal income and state GDP can be seen clearly in Figure 1 below.

Had revenues grown at the same rate as state GDP over that time, state sales tax revenues in fiscal 2014 would have been about $2.2 billion higher than was actually collected. Had they grown at the same rate as personal income in the state, state sales tax revenues in fiscal 2014 would have been about $2.8 billion higher. The shortfall in state sales tax revenue has meant tighter budgets for the state, so understanding the factors contributing to it is important for state policymakers. Why haven’t sales tax revenue kept pace with the economy?

Sales Tax GraphicRead entire blog on the Fiscal Research Center website.