New DOR Figures Buttress LFB Projection of Lower-Than-Expected Tax Revenue
Tax Collections Drop about 2% in January
The Dept. of Revenue (DOR) released new tax collections figures today for the month of January, and those numbers help support the projection earlier this month by the Legislative Fiscal Bureau (LFB) that tax growth will be slower over the rest of the biennium than previously anticipated. The January 2012 revenue is down $28 million or 1.9% compared to the same month in 2011 (after the DOR makes adjustments to correct for changes in the timing of payments). As we reported last week, the latest LFB projection calls for a $273 million decline in tax revenue during the biennium, relative to last May’s forecst.
For the first seven months of the current fiscal year, tax revenue is 3.4% above the same period in 2010-11. The February 9th LFB report on the state’s fiscal condition projected that a continuing slowdown in tax collections over the next five months will lower the growth for the full 2011-12 fiscal year to 2.2%, rather than the 3.0% growth forecasted last May, when the biennial budget was being crafted. The LFB expects revenue growth in the 2012-13 fiscal year to improve to 3.1%, but that would still be well below the 3.6% rate assumed in the budget bill.
One bit of good news in the latest DOR figures is that January sales tax collections were up 4.8% (almost $19 million), which is faster growth than the 3.9% rate over the first 7 months of the fiscal year. However, January individual income tax collections were down almost $18 million, or 1.8%, and corporate income taxes were down $20 million, or 40%!
Lat week’s LFB report alluded to a couple of reasons for those declines. First, new or expanded tax breaks (including some adopted years ago and gradually phased in) are suppressing revenue growth, and the increased deduction for employee health insurance premiums is also being boosted by the significant increase in the share of those premiums borne by public sector employees. Another reason the LFB paper cited was that some taxpayers hadn’t adjusted their withholding to reflect tax policy changes. That could become a more significant factor in holding down tax revenue over the next few months, as income tax refunds go out.
When the LFB made its forecasts earlier this month, it had already seen preliminary DOR figures for the January revenue collections. It appears that the numbers released today are slightly higher than the preliminary January numbers, but the difference is too small to offer any reason to doubt the latest LFB projections (and that is always a foolhardy thing to do).
Over the first 7 months, tax collections are up $242 million. The LFB paper estimated that the growth for the full year will be about $283 million, or just $41 million more over the rest of this fiscal year. We’ll continue to study the numbers closely over the coming months.