US Tax Revenues Show Long-Awaited Increases

July 14, 2010 Taxation in USA

The One we trust...Total tax revenue collections for US States have shown the first rise in broad-level collections since the third quarter of 2008. However, the increase is not indicative of an overall economic recovery, and was caused predominantly by tax rate increases.

On July 13th the Nelson A. Rockerfeller Institute of Government released its latest State Revenue Report. The publication showed that state’s overall tax revenues experienced a 2.5 percent increase in the first quarter of 2010, compared to the same period last year, although despite the improvement, collections were still down by 9.3 percent, compared to the pre-recession levels of two years ago.

The total improvement in tax revenues consisted of rises in collections of Personal Income Tax (2.5 percent), General Sales Tax (0.6 percent), and a fall in collections of Corporate Income Tax (0.4 percent). However, the positive movement is a result of total revenue increases from only 17 states: Connecticut, Maine, Massachusetts, Rhode Island, New Jersey, New York, Michigan, Minnesota, North Dakota, Arkansas, Kentucky, North Carolina, Tennessee, Alaska, California, Hawaii, and Oregon. Of the all the states reporting rises, Alaska showed the highest year-on-year improvement, with total tax collection growth of 261.2 percent and 485.7 percent hike in Corporate Income Tax collection. North Dakota and Hawaii were the next highest, with levels of 32.7 percent and 21.4 percent respectively.

Wyoming experienced the most significant cumulative tax collection fall, at 30.2 percent, followed by Louisiana at 24.6 percent. At the same time, Colorado reported an astounding 1846.8 percent decrease in Corporate Income Tax collection.

According to economic analysts, the cumulative national tax revenue increase does not necessarily signal an economic recovery for the US, as many states are still financially fragile and reporting significant losses. Further, tax revenue increases in many states are due to hikes in state tax rates, as opposed to economic pickups. The overall positive national figures are caused by a handful of standout collection increases across a small number of states. Drawing an example, the report stated that excluding California and New York from the national personal income tax collection calculation would decrease the figure from 2.5 percent to negative 8.4 percent.

Photo by Daniel*1977