Where does State Tax Revenue go

All states collect some form (or multiple forms) of state taxes. Tax revenue is a vital source of revenue that allows states to meet their obligations without borrowing money for vital services. What most taxpayers do not always understand is where does state revenue go once it is collected. Many may be surprised to find out that the bulk of state tax dollars go to fund education from kindergarten through college

Educational expenses

On average, states expend nearly 40% of tax revenue on education according to the Center on Budget and Policy Priorities. 26% goes to fund schools from kindergarten through high school by providing grants to school districts (versus paying direct salaries, etc.) while the remaining 14% goes for funding higher education, typically by subsidizing education expenses for residents of the state in state colleges.

Many people believe that the federal government pays more money in public school costs than the states spend. The reality is that the federal government pays only about 10% of the overall costs of running schools. It is important to remember that along with teacher salaries, building maintenance, heating costs and long-term pension and benefits for retirees also are a portion of the state budget.

Low income aid

In addition to funding schools throughout the state, each state provides funding for aid to people who have low or no income. This may include programs such as aid to families with dependent children (AFDC) or other forms of low income assistance (depending on the program name). These are primarily in the category of monthly cash disbursements to allow families to make ends meet or for families with one parent who is not working.

Other low income aid is provided for health care. The health care programs that are offered by states are typically combined with some form of federal government funding as well. Programs include insurance for children (on aid programs) as well as Medicaid for those who are collecting disability or who are in low income homes. These medical programs help families who may otherwise be forced to go without medical insurance.

Prisons and probationary programs

Each state also funds their own corrections programs. These may include corrections officers, parole officers and may also include prevention program, especially for juveniles. In spite of the climbing cost of maintaining high prison populations, on average states spend only about 5% of their budgets on these types of programs. These funds also are used to fund the prisons themselves as these facilities provide shelter and require maintenance including heat, electricity and other basics.

Transportation and roadways

States who have transit systems use state tax dollars to fund maintenance, salaries and repairs. Depending on the type of transit system the tax revenue may be supplementing fares charged to users. While states may receive federal grants to help with major road and bridge repair, most states fund routine repairs including snow removal on highways, highway maintenance and other routine repairs on bridges and overpasses with state taxes.

While many people believe that the federal government pays a large portion of state expenditures on major projects, the facts are that states are required to fund many of these projects on their own. Portions of state budgets also go to fund pensions and health care for retirees including state workers, state police officers and retired state officials. Individual police forces in some states receive grants from the state to help supplement salaries and pay for vehicles if the towns are unable to fund them from their property tax receipts.