State and local governments collect about 40 percent of all taxes paid. Let’s look at how they obtain tax revenue and how they spend it.

Receipts Table 5 shows the receipts of U.S. state and local governments. Totaf receipts for 2002 were ,
$1,685 billion, or $5,733 per person. The table also shows how this total is broken down into different
kinds of taxes.

The two most important taxes for state and local governments are sales taxes and property . Taxes are levied as a percentage of the total amount spent at retail stores. Every time a customer buys something, he or she pays the storekeeper an extra amount that the storekeeper remits to the government. (Some states exclude certain items that are considered necessities, such as food and clothing.) Property taxes are levied as a percentage of the estimated value of land and structures and are paid by property owners. Together, these two taxes make up more than a third of all receipts of state and local governments.

State and local governments also levy individual and corporate income taxes. In many cases, state and local income taxes are similar to federal income taxes. In other cases, they are quite different. For example, some states tax income.

TABLE 5 Receipts of State and Local Governments: 2002

Spending Table 6 shows the total spending of state and local governments in 2002 and its breakdown among the major categories.

By far the biggest single expenditure for state and local governments is education. Local governments pay for the public schools, which educate most students from kindergarten through high school.

TABLE 6 Spending of State and Local Governments: 2002

The second largest category of spending is for public welfare, which includes transfer payments to. the poor. This category includes some federal programs that are administered by state and local governments. The next category is highways, which includes, the building of new roads and the maintenance of existing ones. The large other  category in Table 6 includes the many additional services provided by state and local governments, such as libraries, police, garbage removal, fire protection, park maintenance, and snow removal.

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