State revenue growth, however, has been even faster than the rate of growth of the economy. This above-average growth reflects many factors, including the higher capital gains realizations that are also reflected in federal tax collections. State individual income taxes are not indexed for real growth and, in many states, neither are they indexed for inflation. Bracket creep, therefore, has also added to many state coffers. The average state individual income tax rate has also tended to rise because income distribution has become more unequal and the percentage of two-earner families continues to rise.
Corporate profits are up, increasing corporate income tax payments as well.
Unlike the federal income tax, in many states the corporate rate is higher than the combined tax rate on individuals from other direct taxes. Thus shifts of income toward corporations and away from individuals also tends to increase state revenues faster than the income growth in the economy. Many of these sources of revenue growth, however, are unstable and uncertain for the future. Despite the strong growth in individual tax revenues, moreover, states find that their other major sources of revenues, such as sales taxes, tend to grow more slowly than the economy. One of the major reasons for considering single business taxes, therefore, is simply that they are a fairly stable source of revenue.