Income tax collections are down in several states compared to a year ago. Some worry it's a sign of things to come.
BY LIZ FARMER | JANUARY 24, 2019 AT 4:00 AM
Every state in a Governing analysis, except Indiana, saw a December drop compared with a year ago.
States with high-income earners suffered the most, reporting double-digit drops in total tax collections.
The dip wasn't a complete surprise following a surge last year in revenues thanks to changes to income taxes and deductions under 2017's federal tax overhaul.
State tax collections took a dive in December compared to the same month a year ago. Observers are worried the dip could indicate more uncertain economic times ahead.
Lower income tax collections is the culprit, according to data compiled by Governing of the top 10 most populous states with an income tax and with recent data available. Every state except Indiana saw a December drop compared with a year ago, ranging from -3.4 percent in Ohio to -41 percent in California.
States with high-income earners suffered the most, reporting double-digit drops in total tax collections. California saw the biggest dip, followed by New York, Massachusetts and New Jersey.
But even low-tax states felt the pinch. Georgia and Virginia both saw single-digit drops.
To a large degree, the dive was expected. Thanks to changes to income taxes and deductions under last year's federal tax overhaul, thousands of taxpayers rushed to file income and property taxes in December 2017, creating an abnormal boost in revenue.
But the declines of this year were steeper than last year's gains, says Lucy Dadayan, a senior research associate at the Urban Institute. “We might continue seeing weak growth in income tax revenues, particularly in these higher tax states, for the rest of the fiscal year.”
While tax revenue nationwide through December is averaging 2.4 percent higher than last year, says Dadayan, income tax collections show a 1.6 percent drop. California and New York are two key states to watch going forward, she says, as they account for up to 40 percent of the nation’s income tax revenue in any given year.
New York's fiscal year closes Mar. 31. Its total tax collections are currently down for the year, and the state comptroller has estimated that the state will close 1.8 percent below fiscal 2017.
California is still ahead of last year’s revenue total, but it’s falling more than 4 percent behind on what it had expected to collect for the year. According to an analysis by Moody’s Investors Service, it needs about $20 billion to come in this month to get back on target.
"The current economic expansion has been beneficial for the state’s coffers,” Moody’s analyst Matthew Butler recently wrote. “However, stock market performance has weakened and a prolonged slump in the stock market would be a significantly negative factor for state revenue going forward.”
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