MONEY GUSHERS
By Antony J. Michels

(FORTUNE Magazine) – So far this year, 35 revenue-hungry states have added new taxes designed to raise $18 billion. The biggest chunk, about $7.5 billion, is expected to come from higher personal income taxes. Since Connecticut has decided to go ahead with a tax on wages after a six-month political catfight, only seven states remain that don't levy any personal income tax (see table). Tennessee and Texas are expected to be the next states to adopt wage taxes. With state budget woes bound to continue, can still higher rates be far behind? States already collect nearly twice as much tax for every $1 in income as they did in 1970. Revenue from individual income taxes as a percentage of total state tax revenue has more than tripled since 1948. To be sure, some states with high income taxes have low or no sales tax. Oregon, for instance, has a top income tax of 9% but no sales tax, while neighboring Washington has no income tax but a 6.5% sales tax. Increasing income taxes can dampen economies by causing people to leave a state. According to Stephen Moore, director of fiscal policy studies at the Cato Institute in Washington, D.C., the ten states with little or no income tax had population growth 9% above the national average during the 1980s, while the ten states with the highest overall tax rates grew 2.4% less than the average.

CHART: NOT AVAILABLE CREDIT: FORTUNE TABLE CAPTION: STATE INCOME TAXES BITE HARDER