Paying taxes is surely everyone's least favorite government-related activity. But taxing citizens is one of the concurrent powers of government. Federal, state, and local levels all have the power to tax.
Of course, people expect state and local governments to provide services such as police protection, education, highway building and maintenance, welfare programs, and hospital and health care. Taxes are a major source of income to pay for these services and many others that hit close to home. For most people, their local and state tax money pays for very visible services that they generally take for granted, except when something goes wrong with garbage collection, traffic lights, or snow removal. People are most likely to get involved with local and state governments when these basic services go wrong.
The single biggest expenditure in all states is education, with the average state and the localities within it spending just less than one-quarter of its budget for public schools. Funding for education comes primarily from the local school district budget, but most state governments give a great deal of financial and administrative support to schools. Other big budget items for state and local governments are the following:
Each of these items is less than 10% of state and local expenditures in most states, but together they make up a good portion of the expenses.
Counties, townships, cities, and states collect some of their money from licenses and fees and state-operated businesses, but about half of state revenue comes from taxes. Two other sources of income are grants from the federal government and, in some states, lotteries. Most states and localities levy three types of taxes:
Other taxes include inheritance and estate taxes imposed when a person dies and wills property to heirs. Several states have severance taxes, levied on those that extract natural resources such as coal, oil, timber, and gas from the land. Almost all states place special excise taxes on gasoline, liquor, automobiles, and cigarettes.
Most states get more than a quarter of their income from federal grants that usually come with restrictions as to how the money can be used. Federal grants often go for building projects, such as roads, bridges, and dams, and for education, health care, and welfare.
In recent years more and more states have turned to lotteries to pay their expenses. Billions of dollars now come from lotteries, with states retaining about one-third of the money as proceeds. Some states designate that the money be spent on something special, such as education, the arts, or building projects. Lotteries are controversial because some people believe that lotteries hurt lower-income people, who buy most of the tickets.
Taxes, federal grants, fees, licenses, and lotteries support state and local budgets. Most people understand more about where their state and local taxes and fees go than they do about federal expenditures. Perhaps that is because state and local services tend to affect their personal lives more directly. Still, many complain that they do not get their money's worth. It is always easier to recognize the pinch that taxes bring than the services most people take for granted.