Where does State Tax Revenue go

Due to the recent recession and its aftermath, states and their policymakers continue to confront major decisions about how to pay for crucial services now and in the future. To make the right decision, it helps to figure out where state tax dollars go.

For the most part, states spend most of the tax dollars on education and healthcare. However, they also have to fund a variety of other services such as pension, transportation, corrections, care for persons with mental illness and developmental disabilities, assistance to low-income families, state policies, environmental projects, housing, aid to local governments, and parks and recreation.

From the early 1990s until recently, state spending as a share of the economy remained at about the same level, but dropped because of the recent recession.  Spending on education has stayed pretty much at a constant rate. Spending on transportation and cash assistance to low-income families has declined.

The biggest three areas of spending that make up over half of state spending are as follows:

K-12 education: One of the biggest funders of the nation’s public elementary and secondary schools is states. On average, about one-fourth or about $260 billion goes towards public education. Instead of paying teacher salaries and other school costs directly, states usually provide grants to local school districts. The federal government pays less than 10 percent of public school costs.

Higher education: About 14 percent of state spending goes to funding higher education through the support of public community colleges, university systems and vocational institutions. States spend about $139 billion on higher education.

Health care: Stated, along with the federal government fund health insurance for low-income families through programs such as Medicaid and the Children’s Health Insurance Programs. These health programs provide coverage for long-term care for more than 45 million low-income children, parents, elderly people, and people with disabilities. This counts for around 13 percent of state budgets, or about $135 billion. State spending on healthcare has grown and this is due to rising health care costs and increased enrollment, especially of children.

Transportation: About 7 percent of state spending is spending on transportation, which totals to about $71 billion. This money is used to build and repair roads and bridges, as well as for public transit systems.

Corrections: Prisons, juvenile justice programs, and parole and other corrections programs take about 5 percent of the state budget, which is about $48 billion.

Financial assistance: Cash assistance for low-income individuals through Temporary Assistance to Needy Families and other smaller programs such as general assistance make up a very tiny share of state spending. States spend about 1 percent or $12 billion on financial assistance.

The amount each state spends does vary from state to state. However, what is very clear is that tax dollars are essential in funding services that are essential for everyone. When the state tax revenue declines, crucial services will also be cut back and that hurts those in need.