State Tax Revenues Up But Volatility Continues
August 9, 2013 08:21 AM
States' tax collections have been growing for 13 straight quarters now. While inflation-adjusted state tax revenues are presently above the recessionary peaks, states continue to face fiscal challenges, particularly due to artificially propped-up personal income tax revenues, according to the latest State Revenue Report from the Rockefeller Institute of Government at the State University of New York.
State tax revenues were up 8.6 percent for the first quarter of 2013 compared to the same period of 2012, according to the report by Lucy Dadayan and Donald J. Boyd. States reported the largest growth in personal income tax collections at 18.4 percent, largely due to the acceleration of income into calendar year 2012, as discussed in previous State Revenue Reports. The strong growth in personal income tax collections is not evenly distributed among the states. California reported the largest growth in personal income tax collections in terms of dollar value. Without California, which represented about one quarter of nationwide personal income tax collections in the first quarter of 2013, personal income tax collections showed a growth of 10.2 percent for the nation.
The large increase in personal income tax collections is mostly attributable to taxpayer behavior and attempts to accelerate income into 2012 in anticipation of federal tax law changes. "Such large increases in personal income tax collections would undoubtedly lead to lower amounts in coming years," according to the report.
In the first quarter of 2013, overall state tax collections were above the peak levels reported in the first quarter of 2008 in 39 states. However, after adjusting for inflation, state tax revenues showed only 4.2 percent growth in the first quarter of 2013 compared to the same quarter of 2008. The recovery has been particularly anemic for sales tax collections. Inflation-adjusted figures still showed a decline of 0.5 percent in sales tax collections in the first quarter of 2013 compared to the same quarter of five years ago.
Preliminary April-May figures from 47 early reporting states suggest revenue gains would continue for the 14th consecutive quarter. Overall collections showed growth of 13.7 percent in the April-May months of 2013 compared to the same months of 2012. However, June is the most important month in the quarter and these early results may not reflect the full quarter.
Article provided by the Nelson A. Rockefeller Institute of Government, the public policy research arm of the State University of New York. The Institute conducts fiscal and programmatic research on American state and local governments.