Tax Revenues Grow
More Sluggishly;
Blame the Economy
December 5, 2007 WSJ
A sluggish economy and housing-market woes are taking a toll on state government coffers -- and that is expected to mean further slowing in spending programs and tax relief.
That's the picture that emerges from interviews with state-government representatives and a joint semi-annual report to be issued today by the National Association of State Budget Officers (www.nasbo.org/) and National Governors Association (www.nga.org/portal/site/nga). The overall state-budget picture has undergone "continued deterioration" in recent months, says Ray Scheppach, executive director of the National Governors Association.
Slower economic growth hits state governments in various ways, including declining revenue from sales taxes as consumers rein in spending on everything from new cars to home furnishings. But officials worry that state budget headaches likely will continue to be significant for years to come because of intense spending pressures from such areas as healthcare, infrastructure needs and under-funded pensions.
"We now expect revenue growth in at least 15 to 20 states to come in below projections" over the next six months or so, says Scott Pattison, executive director of the National Association of State Budget Officers.
The report shows that, based on enacted budgets for fiscal 2008, which for most states ends June 30, states expect revenues from personal income, sales and corporate income taxes will be about 2.9% higher than those collected in fiscal 2007, a growth rate Mr. Pattison calls "relatively sluggish." In fiscal 2007, revenues rose 5.6% from the previous year. But even the latest projections are seen as overly optimistic because of "reports of continued softness in the fiscal situation of many states since the data was collected for the report," Mr. Pattison says.
State and local taxes have attracted growing attention in recent years in part because of the rapid growth of the alternative minimum tax, which has different rules than the regular federal income-tax system. Taxpayers ensnared by the AMT, for instance, can't deduct state or local taxes. About four million taxpayers were subject to the AMT last year, and unless Congress acts to keep it from spreading, an estimated 25 million taxpayers will be ensnared by the AMT for 2007.
State-tax revenues generally are expanding at a "substantially slower rate" than earlier this year, says Harley Duncan, executive director of the Federation of Tax Administrators, which represents tax and revenue agencies. That includes a "significant slowdown" in sales-tax collections, a trend he says is "directly traceable" to the housing situation.
Spending growth by states also is slowing. For fiscal 2008, states have budgeted spending increases of 4.7%, down sharply from 9.3% growth in fiscal 2007, and below the 6.4% average spending growth of the past 30 years, according to the report. Last year's surge in spending came as a result of states dipping into surpluses from prior years to provide tax cuts and boost spending on programs that had undergone big budget cuts in the last fiscal downturn, the report says. Many states continued to face spending pressures from such areas as Medicaid costs and under-funded employee pension systems.
Facing budget headaches, some states already have begun to reduce spending. Rhode Island Gov. Donald L. Carcieri recently released a list of around 500 job positions that are being eliminated, or are targeted for elimination, in a move projected to save about $41.6 million a year. "As the state's budget forecast has grown even worse, it has become clear that we must redouble our efforts to cut state spending," Gov. Carcieri said.
Meanwhile, states in aggregate are all but eliminating tax cuts. States enacted net tax and fee cuts of just $115.5 million for fiscal 2008, far below the $2.1 billion in cuts in fiscal 2007, according to the report.
But that 2008 figure already is out of date because of actions in some states since the data in the report were tabulated. Maryland recently approved a wide variety of tax increases, including lifting the sales tax to 6% from 5% starting in January. Maryland also raised personal income taxes, corporate income taxes, tobacco taxes and vehicle excise taxes.
A number of states are continuing to raise taxes on cigarettes and other tobacco products, a far easier political target than most other types of taxes. This category represented the largest source of revenue increases enacted in fiscal 2008 budgets.
Other states facing budget problems include Michigan, hurt by the struggling U.S. auto industry. Earlier this fall, Michigan approved higher personal income taxes, and, in a move that drew strong criticism, also decided to slap a 6% sales tax on a wide range of services that previously were exempt. But Michigan lawmakers reversed course in recent days: They decided to repeal the 6% tax on services and, instead, impose higher business taxes.
More Sluggishly;
Blame the Economy
December 5, 2007 WSJ
A sluggish economy and housing-market woes are taking a toll on state government coffers -- and that is expected to mean further slowing in spending programs and tax relief.
That's the picture that emerges from interviews with state-government representatives and a joint semi-annual report to be issued today by the National Association of State Budget Officers (www.nasbo.org/) and National Governors Association (www.nga.org/portal/site/nga). The overall state-budget picture has undergone "continued deterioration" in recent months, says Ray Scheppach, executive director of the National Governors Association.
Slower economic growth hits state governments in various ways, including declining revenue from sales taxes as consumers rein in spending on everything from new cars to home furnishings. But officials worry that state budget headaches likely will continue to be significant for years to come because of intense spending pressures from such areas as healthcare, infrastructure needs and under-funded pensions.
"We now expect revenue growth in at least 15 to 20 states to come in below projections" over the next six months or so, says Scott Pattison, executive director of the National Association of State Budget Officers.
The report shows that, based on enacted budgets for fiscal 2008, which for most states ends June 30, states expect revenues from personal income, sales and corporate income taxes will be about 2.9% higher than those collected in fiscal 2007, a growth rate Mr. Pattison calls "relatively sluggish." In fiscal 2007, revenues rose 5.6% from the previous year. But even the latest projections are seen as overly optimistic because of "reports of continued softness in the fiscal situation of many states since the data was collected for the report," Mr. Pattison says.
State and local taxes have attracted growing attention in recent years in part because of the rapid growth of the alternative minimum tax, which has different rules than the regular federal income-tax system. Taxpayers ensnared by the AMT, for instance, can't deduct state or local taxes. About four million taxpayers were subject to the AMT last year, and unless Congress acts to keep it from spreading, an estimated 25 million taxpayers will be ensnared by the AMT for 2007.
State-tax revenues generally are expanding at a "substantially slower rate" than earlier this year, says Harley Duncan, executive director of the Federation of Tax Administrators, which represents tax and revenue agencies. That includes a "significant slowdown" in sales-tax collections, a trend he says is "directly traceable" to the housing situation.
Spending growth by states also is slowing. For fiscal 2008, states have budgeted spending increases of 4.7%, down sharply from 9.3% growth in fiscal 2007, and below the 6.4% average spending growth of the past 30 years, according to the report. Last year's surge in spending came as a result of states dipping into surpluses from prior years to provide tax cuts and boost spending on programs that had undergone big budget cuts in the last fiscal downturn, the report says. Many states continued to face spending pressures from such areas as Medicaid costs and under-funded employee pension systems.
Facing budget headaches, some states already have begun to reduce spending. Rhode Island Gov. Donald L. Carcieri recently released a list of around 500 job positions that are being eliminated, or are targeted for elimination, in a move projected to save about $41.6 million a year. "As the state's budget forecast has grown even worse, it has become clear that we must redouble our efforts to cut state spending," Gov. Carcieri said.
Meanwhile, states in aggregate are all but eliminating tax cuts. States enacted net tax and fee cuts of just $115.5 million for fiscal 2008, far below the $2.1 billion in cuts in fiscal 2007, according to the report.
But that 2008 figure already is out of date because of actions in some states since the data in the report were tabulated. Maryland recently approved a wide variety of tax increases, including lifting the sales tax to 6% from 5% starting in January. Maryland also raised personal income taxes, corporate income taxes, tobacco taxes and vehicle excise taxes.
A number of states are continuing to raise taxes on cigarettes and other tobacco products, a far easier political target than most other types of taxes. This category represented the largest source of revenue increases enacted in fiscal 2008 budgets.
Other states facing budget problems include Michigan, hurt by the struggling U.S. auto industry. Earlier this fall, Michigan approved higher personal income taxes, and, in a move that drew strong criticism, also decided to slap a 6% sales tax on a wide range of services that previously were exempt. But Michigan lawmakers reversed course in recent days: They decided to repeal the 6% tax on services and, instead, impose higher business taxes.
No comments:
Post a Comment