State Taxes Revenue Rise Helps, Not Heals Budget
Life + Money

State Taxes Revenue Rise Helps, Not Heals Budget


State tax revenues rose for the fourth straight quarter after five quarters of decline due to tax increases and higher collections on sales and personal income taxes. But they remain comparatively weak compared to pre-recession levels, according to Rockefeller Institute research and Census Bureau data.

The report’s authors said in a statement that last year’s tax collection is good news for states, thoug, “the road to fiscal recovery will remain slow and gradual.”

“One thing that people caution: You can have a high gross rate as you’re coming out of a recession,” said Tracy Gordon, a visiting fellow and tax expert at the Brookings Institution. “But the states are coming out of a big hole and took a big hit in the case of revenues.”

Recent data for January and February of 2011 showed 45 states’ overall tax collections grew 9.5 percent, better than the 7.5 percent growth shown in the same months last year. Though employment and the U.S. economy are rebounding slowly, consumption of durable goods, legislated tax changes, and stronger retail sales have contributed to the modest tax revenue growth. 

During the October-December 2010 quarter, for example, enacted tax changes increased state revenue by an estimated net of $1.2 billion, compared to the same period in 2009. 

Additionally, states rely on the sales tax for about 30 percent of their tax revenues. Retail sales plummeted after December 2007, falling sharply to 10 percent below their prerecession peak by December 2008. Retail sales have been steadily rising for a year and a half, but remain three percent below their prerecession peak, according to the report.

States also count on income tax for about 36 percent of their tax revenues, for which employment and associated wage payments are key funding drivers. States have experienced a rise in income-tax receipts, up 14.2 percent in the first two months of the year in the 45 states tracked by Rockefeller. Corporate income taxes, meanwhile, were up 11.5 percent.

By comparison, local governments continue to struggle mightily due in large part to the affect of falling home prices  on property tax collections. In the last two decades, property taxes made up at least two-thirds of total local tax collections, according to the report.

Related Links:
State Tax Collections Tick Up (The Wall Street Journal)
State tax revenues up 12 percent, ahead of forecast for year (Richmond-Times Dispatch)
Census Bureau Releases 2010 State Tax Collection Data (Tax Foundation)