State tax revenues dropped in the first quarter of the year for the first time since the end of 2009 — and early data suggest the decline continued in the second quarter.
Fortunately, states saw the drop coming, according to a tax-estimate report from the Rockefeller Institute of Government at the State University of New York. That’s because it represents the cascading effects of the fiscal cliff, the end-of-2012 fight over spending cuts and tax hikes. Many (wealthy) taxpayers sold stocks and collected income on bonuses in 2012 rather than 2013 to avoid impending higher taxes, which resulted in what the report calls a “trough” in capital gains in 2013.
State tax revenues dropped 0.3 percent, unadjusted for inflation, in the first quarter of the year compared to the same quarter in 2013, suggesting better fiscal conditions than portrayed in a June tax release from the Census Bureau, the report finds. Individual income taxes were down 1.2 percent, but sales and corporate taxes were up 1.7 percent and 1.4 percent.
Three states saw double-digit tax revenue growth
(Darker-shaded states saw greater positive growth in first-quarter revenues.)
Three states saw double-digit growth in overall tax revenues from the first quarter of 2013 to the same period this year. Revenues grew the most in Nebraska, at 22.3 percent, followed by 12.1 percent in Wyoming and 11.8 percent in Louisiana. Three states posted double-digit declines. Alaska saw revenues drop 67.8 percent, followed by Minnesota’s 16.3 percent and Michigan’s 14.2 percent decline.
Plains states — Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota — saw the biggest declines, of 5.4 percent. The Rocky Mountain states — Colorado, Idaho, Montana, Utah and Wyoming — saw the biggest growth, at 6.4 percent.
Twenty-two states collected more from personal income tax revenue than sales tax revenue
(Darker-shaded states collected more from the personal income tax than the sales tax.)
State taxes are more erratic than the overall economy
While tax revenue is related to economic growth, the fact that it has been more volatile than the economy overall suggests other factors, such as policy, could affect revenues.
The fiscal cliff’s effect was strongest on personal income taxes
Personal income taxes fluctuated far more than sales taxes, as the chart below shows. The data also show that the Great Recession hit state tax collections harder than either of the recessions that came before it.