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Revenue instability of sales tax

Many localities have increase their reliance on sales taxes, which are considered by many as more politically acceptable than the traditional mainstay of property tax. A drawback of sales taxes, however, is that the revenues are subject to more fluctuations than that of property tax when the economy goes up and down.

Kansas's Lawrence Journal World (2/4, Lawhorn) reported that "flat" 2007 sales tax receipts mean that "more city budget cuts may be on the way" for 2008. The 2007 figures were "about $1 million less than commissioners had budgeted." The 2008 budget would require "sales tax increase by 3.1 percent over their 2007 levels," and the typical annual growth rate only "averaged 2.3 percent." Last year, the city faced a similar problem and "commissioners imposed across-the-board decreases" for some types of social service and "outside" groups as well as making internal budget cuts. City Manager David Corliss told commissioners that overall economic conditions were depressing tax receipts (Courtesy: ICMA newsletter).


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Hubert H. Humphrey Institute of Public Affairs