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State Tax Revenue Down 26% In 2009

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State tax revenue down 26% in 2009

It’s not just California. Tax revenue is falling everywhere.
State income-tax revenue fell 26% in the first four months of 2009 compared to the same period last year, according to a survey of states by the nonprofit Nelson A. Rockefeller Institute of Government.

The report, conducted by the public-policy research arm of the State University of New York, is one of the most up-to-date measures of how deep the recession is digging into Americans’ wallets and, consequently, state coffers.

States are required by law to balance the budget, so lower tax revenues will translate in service cuts, rather than red ink. Already states such as Kansas are slowing the payment of income-tax refunds and delaying payments to local school districts, according to the report.

This is a point I have highlighted in the past: when state taxes fall, services get cut. And the fact that states are constrained unlike the U.S. government because they have no printing presses is one reason I said in January that the President’s stimulus package was not going to get it done. Time will tell whether U.S. government largesse is countered by state and local government cutbacks. And it is local government services you probably care most about: schools, police, garbage collection, swimming pools, libraries.


State Income-Tax Revenues Sink

Withholdings from the first four months of 2009 were down 6.9% from the same period in 2008, signaling that "many people had a very bad start of the year" with lower salaries and wages, says Don Boyd, a senior fellow at the Rockefeller Institute.

The time span notably includes the April 15 deadline for filing taxes, a critical time for states to collect revenues.

The sharp decline was a rude awakening for many states, both because income tax is the main source of revenue and because the drop was deeper than expected. It was steepest in Arizona, South Carolina, Michigan, California and Vermont. Only Utah, Alabama and North Dakota posted gains.

For most states, the fiscal year starts on July 1, so many were "in the process of dotting i's and crossing t's" in their 2009-2010 budget agreements when the bad news came. Most states will probably need to square the budget with midyear cuts, the report predicts.

Personal-income-tax collections were down by $28.8 billion between January and April of 2009, compared to the some period last year, in the 37 states surveyed. Nine states don't collect broad-based personal income taxes, while results for the others weren't available.

The plunge in income-tax revenue means some states may have to revise budget agreements for 2009-2010 and may still face gaping holes in 2011, when federal stimulus money runs out.

The whole system is going to fall apart. I have been to America many times and know first hand how dilapidated their infrastructure is, and with the social welfare system in free fall, there is no positive outcome. Things are going to get very nasty and there is going to be a lot of civil strife. We may even see the army moved in to calm the people.

Injin's state failure.

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