I’ve been told that a ‘3-legged stool’ (income tax, sales tax and property tax) is the best way to fund government. It seems like cutting income tax creates a wobbly stool.
Actually, the data shows that government is far better off relying on sales tax and property tax because of the volatility in income tax. Over the two years following the 2008 recession, income tax collections (individuals, corporations and financial institutions) dropped 20.9% but retail sales and compensating use tax only declined by 5.1% and assessed valuation dipped by just 5.0%. Precipitous decline in income tax collections were the primary cause of General Fund spending being cut by $834 million between 2008 and 2010; the impact on services would have been much less severe if primarily funded by sales and property taxes.