US State Tax Revenues Suffer Record Plunge

by Mike Godfrey, Tax-News.com, Washington

23 July 2009

Taxes collected by the 50 states dropped by 11.7% overall during the first quarter of 2009 compared to the same period a year earlier – the largest such decline in the 46 years since such data has been available, according to a new report.

Overall state tax revenues fell to the lowest first-quarter level since 2005, the Rockefeller Institute of Government, the public policy research arm of the State University of New York, said in its latest report on state finances.

The decline in personal income tax was particularly sharp, and the report describes an “unprecedented” decline of 17.5% as the weakened economy continued to hammer state budgets. Forty-five of the 50 states experienced revenue declines.

Early figures for April and May of 2009 show an overall decline of nearly 20% for total taxes. Preliminary figures for the state fiscal year 2009 indicate around 8% decline in total taxes, 13% in personal income taxes, and 5% in sales taxes.

However, tax collections at the local government level appear to have fared better than state taxes, having grown by 3.9% in the first quarter, the report informed.

The Institute report regularly examines the three major sources of revenues for states: personal income taxes, sales taxes and corporate income taxes. During the first quarter of 2009, personal income taxes fell 17.5%. Sales tax collections were down 8.3% and corporate income taxes fell 18.8%.

Alaska - where tax revenues are strongly linked to oil prices - experienced the largest decline of 72% in the first quarter of 2009. But all regions saw declines in total state tax collections, with the Far West seeing the largest decline at 16%. Only the Rocky Mountain and Plains regions saw single-digit declines at 5.0 and 6.0%, respectively.

The report’s authors, Institute Senior Fellow Donald J. Boyd and Senior Policy Analyst Lucy Dadayan, warned that such “extraordinary weakness” in revenues, along with continued, if more moderate, growth in expenditures, will make widespread budget shortfalls “highly likely” this year.

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