A Rockefeller Institute report released this week depicts weaker tax revenue growth or slight declines for most states. State personal income tax receipts are expected to grow a median of 4.6 percent in fiscal year 2016 and 4.4 percent in fiscal 2017, compared with 7.8 percent last year. Sales taxes are similarly expected to rise by a median of just 3.5 percent this year and 3.9 percent in fiscal 2017, down from 4.5 percent growth last year.
“The bleak forecasts certainly mean tough decisions for the state officials, whether it’s in the form of tax increases, spending cuts, or tapping the rainy day funds,” said Lucy Dadayan, a Rockefeller Institute senior policy analyst who co-authored the report.
The projected slowdowns for individual states are largely being caused as a result of how tax systems are structured.
In a handful of states, the culprit is the drop in oil prices. Four of the five states experiencing double-digit declines in total state tax collections during the fourth quarter of last year have budgets that rely heavily on oil revenues -- Alaska, Louisiana, North Dakota and Oklahoma. No state has incurred steeper cuts than Alaska, where oil revenues fund approximately 90 percent of the general fund. Gov. Bill Walker’s recent budget proposal would impose the state’s first personal income tax since 1980.
States leaning more on capital gains taxes are also expecting to take hits. The stock market incurred steady losses in January and early February, with the Standard & Poor’s 500 Index falling to its lowest levels since May 2014. Even with the market’s recent rally, the S&P 500 and Dow Jones Industrial Average are still down for the year. Many economists expect the market to test new lows in the coming months.
Dadayan pointed out that declines in the stock market could deal a particularly severe blow to states that lack protection from the boom-and-bust cycles of capital gains. A measure in California, for example, mandates that capital gains taxes account for no more than 8 percent of general fund revenues, with any remaining money paying for debt and reserve funds.
Fears that the country is headed into a recession are another factor likely contributing to states’ weak forecasts. The economy has now enjoyed nearly seven years of economic growth. The last period of economic expansion, which ended in December 2007, lasted just over six years. Since the end of World War II, the average cycle of business expansion has lasted 58 months, or nearly five years, according to the National Bureau of Economic Research.
Anxiety over the economy, Dadayan said, could lead some Americans to alter spending habits. Growth in e-commerce sales, which often isn’t taxed, is also taking a toll on sales tax collections.
Overhauls to tax laws are further weighing down revenue forecasts in a few states. In general, states have been far less willing to implement tax increases in recent years, compared to the recession back in 2001, Dadayan said.
In California, an earned income tax credit benefiting low-income workers is expected to result in a $380 million reduction in personal income tax collections. Ohio is expected to lose out on even more revenue -- $1.1 billion -- after enacting broad income tax cuts and other tax code changes. Connecticut, meanwhile, expects to raise additional revenue from increases in corporate income taxes.
State Personal Income Tax Revenues
Thirty of 37 states reporting income tax revenue projections expect weaker income tax growth for fiscal 2016 than fiscal 2015. This table shows actual revenue collections for fiscal 2015 and state forecasts for 2016 and 2017.| State | 2014-15 Change | 2015-16 Change | 2016-17 Change | 2015 Actual | 2016 Forecast | 2017 Forecast |
|---|---|---|---|---|---|---|
| Arizona | 8.6% | 4.8% | 5.2% | $3,761 | $3,941 | $4,147 |
| Arkansas | 2.4% | 1.3% | 1.5% | $2,664 | $2,699 | $2,741 |
| California | 13.3% | 3.1% | 5.1% | $75,384 | $77,700 | $81,652 |
| Colorado | 11.5% | 2.0% | 7.7% | $6,350 | $6,478 | $6,974 |
| Connecticut | 4.9% | 4.6% | 2.7% | $9,151 | $9,570 | $9,829 |
| Delaware | 5.4% | 4.4% | 4.1% | $1,252 | $1,307 | $1,361 |
| Georgia | 8.0% | 4.2% | 6.3% | $9,679 | $10,084 | $10,716 |
| Hawaii | 13.9% | 4.9% | 5.0% | $1,988 | $2,086 | $2,190 |
| Idaho | 10.6% | 3.6% | 5.4% | $1,471 | $1,524 | $1,606 |
| Indiana | 6.8% | 0.3% | 2.3% | $5,233 | $5,250 | $5,372 |
| Iowa | 5.8% | 7.0% | 4.6% | $4,207 | $4,502 | $4,708 |
| Kansas | 2.7% | 7.6% | 1.4% | $2,278 | $2,450 | $2,485 |
| Kentucky | 8.5% | 4.0% | 4.2% | $4,070 | $4,234 | $4,411 |
| Louisiana | 4.9% | 5.8% | 5.5% | $2,886 | $3,055 | $3,222 |
| Maine | 8.2% | 1.8% | 5.9% | $1,522 | $1,549 | $1,640 |
| Maryland | 7.4% | 5.2% | 5.6% | $8,346 | $8,779 | $9,273 |
| Massachusetts | 9.4% | 3.4% | 4.0% | $14,449 | $14,940 | $15,543 |
| Michigan | 12.1% | 0.6% | 3.5% | $8,980 | $9,032 | $9,346 |
| Minnesota | 7.7% | 2.6% | 5.6% | $10,403 | $10,678 | $11,278 |
| Mississippi | 4.6% | 5.0% | 4.0% | $1,743 | $1,830 | $1,903 |
| Missouri | 8.5% | 4.8% | 4.8% | $6,891 | $7,221 | $7,566 |
| Montana | 10.6% | 5.7% | 5.6% | $1,176 | $1,243 | $1,313 |
| Nebraska | 7.0% | 4.3% | 5.0% | $2,205 | $2,300 | $2,415 |
| New Mexico | 6.8% | 4.6% | 3.9% | $1,340 | $1,401 | $1,455 |
| New York | 1.7% | 7.7% | 6.1% | $43,709 | $47,094 | $49,960 |
| Oklahoma | 6.5% | -8.8% | -11.1% | $2,161 | $1,971 | $1,752 |
| Oregon | 10.6% | 5.3% | 3.4% | $7,330 | $7,716 | $7,976 |
| Pennsylvania | 5.9% | 5.5% | 3.5% | $12,107 | $12,772 | $13,213 |
| Rhode Island | 10.0% | -1.0% | 4.2% | $1,228 | $1,215 | $1,265 |
| South Carolina | 7.0% | 6.2% | 4.6% | $3,661 | $3,888 | $4,067 |
| Tennessee | 26.8% | 7.3% | 4.7% | $303 | $326 | $341 |
| Utah | 9.3% | 5.2% | 4.4% | $3,158 | $3,321 | $3,467 |
| Vermont | 5.2% | 7.8% | 4.3% | $706 | $761 | $794 |
| Virginia | 9.6% | 3.6% | 3.0% | $12,329 | $12,778 | $13,162 |
| West Virginia | 10.6% | 1.1% | 4.0% | $1,840 | $1,861 | $1,935 |
| Wisconsin | 3.7% | 6.6% | 3.1% | $7,326 | $7,810 | $8,050 |
| Illinois | -3.8% | -14.2% | 1.2% | $17,682 | $15,173 | $15,354 |
NOTE: Personal income tax totals shown in million dollars. Data was not reported for Alaska, North Carolina, North Dakota, New Jersey, Nevada and Ohio. Other unlisted states do not levy personal income taxes.
SOURCE: Rockefeller Institute compilation of state data, not adjusted for inflation
State Sales Tax Revenues
Of the 39 states reporting sales tax forecasts, 23 are projecting slower year-over-year revenue growth for fiscal 2016. Actual fiscal 2015 revenue collections and state forecasts for 2016 and 2017 are shown. Agencies responsible for revenue projections vary from state to state. Most forecasts cited in the Rockefeller report were issued in December or earlier this year.| State | 2014-15 Change | 2015-16 Change | 2016-17 Change | 2015 Actual | 2016 Forecast | 2017 Forecast |
|---|---|---|---|---|---|---|
| Arizona | 5.1% | 3.3% | 4.0% | $4,191 | $4,331 | $4,503 |
| Arkansas | 1.1% | 4.9% | 3.9% | $2,198 | $2,305 | $2,396 |
| California | 6.4% | 6.6% | 2.1% | $23,684 | $25,240 | $25,761 |
| Colorado | 8.0% | 3.0% | 5.8% | $2,879 | $2,967 | $3,140 |
| Connecticut | 2.4% | 0.6% | -3.3% | $4,205 | $4,230 | $4,092 |
| Florida | 6.9% | 4.9% | 5.2% | $21,063 | $22,086 | $23,243 |
| Georgia | 5.2% | 0.8% | 4.2% | $5,390 | $5,433 | $5,659 |
| Hawaii | 5.9% | 6.8% | 5.5% | $2,993 | $3,198 | $3,374 |
| Idaho | 6.4% | 4.9% | 5.2% | $1,219 | $1,279 | $1,345 |
| Indiana | 3.9% | 2.1% | 4.4% | $7,195 | $7,346 | $7,665 |
| Iowa | 4.2% | 3.1% | 2.7% | $2,753 | $2,839 | $2,915 |
| Kansas | 1.6% | 7.6% | 3.7% | $2,485 | $2,675 | $2,775 |
| Kentucky | 4.3% | 4.7% | 3.5% | $3,267 | $3,421 | $3,540 |
| Louisiana | 3.1% | 6.3% | -1.1% | $2,701 | $2,872 | $2,841 |
| Maine | 8.0% | -5.7% | 4.7% | $1,195 | $1,127 | $1,181 |
| Maryland | 5.0% | 3.8% | 3.2% | $4,351 | $4,516 | $4,662 |
| Massachusetts | 5.1% | 5.5% | 5.7% | $5,774 | $6,090 | $6,436 |
| Michigan | -1.0% | 2.9% | 0.2% | $7,819 | $8,046 | $8,059 |
| Minnesota | 1.7% | 4.6% | 5.5% | $5,131 | $5,368 | $5,663 |
| Mississippi | 2.7% | 2.9% | 3.8% | $2,261 | $2,327 | $2,415 |
| Missouri | 2.3% | 2.9% | 3.1% | $2,014 | $2,073 | $2,137 |
| Nebraska | 0.7% | 1.9% | 3.5% | $1,535 | $1,565 | $1,620 |
| New Mexico | 4.7% | -1.0% | 6.3% | $2,167 | $2,144 | $2,280 |
| New York | 3.2% | 2.5% | 4.2% | $12,991 | $13,317 | $13,877 |
| Oklahoma | 3.1% | -8.4% | 1.6% | $2,224 | $2,038 | $2,070 |
| Pennsylvania | 4.0% | 3.5% | 3.5% | $9,493 | $9,830 | $10,178 |
| Rhode Island | 5.2% | 1.8% | 3.5% | $963 | $981 | $1,015 |
| South Carolina | 5.5% | 5.4% | 5.0% | $2,644 | $2,785 | $2,926 |
| South Dakota | 1.6% | 4.3% | 3.7% | $837 | $873 | $905 |
| Tennessee | 5.8% | 5.6% | 5.3% | $7,706 | $8,141 | $8,576 |
| Texas | 5.5% | 1.2% | 4.8% | $28,787 | $29,144 | $30,546 |
| Utah | 3.5% | 3.8% | 4.0% | $1,715 | $1,780 | $1,852 |
| Vermont | 3.1% | 3.8% | 3.6% | $365 | $378 | $392 |
| Virginia | 5.5% | 5.0% | 3.9% | $3,235 | $3,398 | $3,529 |
| Washington | 6.8% | 7.2% | 4.1% | $8,793 | $9,428 | $9,812 |
| West Virginia | 4.7% | 3.4% | 8.6% | $1,228 | $1,270 | $1,379 |
| Wisconsin | 5.7% | 3.2% | 3.3% | $4,892 | $5,051 | $5,218 |
| Wyoming | 4.4% | -14.2% | 0.8% | $544 | $467 | $471 |
| Illinois | 4.6% | 0.2% | 1.9% | $8,030 | $8,050 | $8,203 |
NOTE: Sales tax totals shown in million dollars. Data was not reported for Alaska, North Carolina, North Dakota, New Jersey, Nevada and Ohio. Other unlisted states do not levy sales taxes.
SOURCE: Rockefeller Institute compilation of state data, not adjusted for inflation
