States Report Strong Tax Revenue Growth – Signs of Recovery?

In this recent Rockefeller Institute of Government report (click to read the full document) on state tax revenues for Q1, 2011 reveals encouraging signs for growth in collections and the likelihood of achieving overall fiscal improvements when combined with efforts to rein in costs and spending: 

  • Preliminary tax collection data for the January-March quarter of 2011 show strong growth in overall state tax collections as well as for personal income tax and sales tax revenue;
  • Data from 47 early reporting states shows collections from major tax sources increased by 9.1 percent in nominal terms in the first quarter of 2011 compared to the same quarter of 2010, representing the third consecutive quarter of increasing strength in revenues;
  • Tax collections now have been rising for five straight quarters, following five quarters of declines, but were still 3.1 percent lower in early 2011 than in the same period three years ago;
  • Virtually every state reported growth in overall tax collections as well as in tax collections from two major sources: personal income tax and sales tax;
  • States’ personal income taxes represented a nearly $6.7 billion or 12.4 percent gain, and sales taxes a $2.9 billion or 5.6 percent gain for the period.

It is notable that California reported the largest increase in overall tax collections in the first quarter of 2011, where revenue collections rose by $1.4 billion or 5.6 percent.  Illinois and New York also reported large increases in overall tax collections.

As with all economic recoveries, while the trend is upward, peaks and valleys will undoubtedly occur.  While the economic data has disappointed in recent weeks, using conservative growth assumptions for the period from 2011 to 2013, MainLine West estimates that the states will reach 2008 revenue levels by late 2012 or early 2013.  If this occurs, it will provide a strong base for credit quality improvement, especially if current downsizing of government services and costs remain intact.

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Posted in Economic theories, General, State Budgets, Taxes

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