TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, June 18, 2013

CBPP: State Income Tax Revenues Surge 17.6%

Center on Budget and Policy Priorities:  States Should React Cautiously to Recent Income Tax Growth April Surge Provides Opportunity to Invest in Infrastructure, Boost Reserves:

Recent tax collections are considerably higher than last year in most states and, in many cases, exceed states’ projections when they adopted their current budgets in the spring of 2012.  In 32 states for which data are available, state tax collections in the first ten months of fiscal year 2013 were 5.7 percent higher than in the same period last year, on average. 

Figure 1

  A closer look into the tax collection reports reveals that: 

  • Much of the recent growth is in the income tax.  With two months left in the fiscal year, the typical state has collected 8.9 percent more personal income taxes than it did in the same period last year.  Sales taxes have grown more slowly.  This is, in part, the latest demonstration of the fact than income taxes rise more rapidly than sales taxes during periods of economic growth. 
  • The revenue growth and particularly income tax growth is nationwide.  Some 26 of the 30 states for which data are available experienced double-digit growth in income taxes between April 2012 and April 2013. 
  • While a portion of the income tax growth reflects the economic recovery, an additional portion reflects wealthy taxpayers shifting income into 2012 that they would have received in 2013 in anticipation of federal tax rate increases in 2013.
  • Even with this recent growth, state tax revenues have not recovered from the Great Recession. Revenues likely still remain more than 3 percent below pre-recession levels, after adjusting for inflation.  And because of the one-time nature of much of the recent revenue growth, revenue growth is likely to slow again.

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