States enjoyed a record $260 billion haul of tax revenue in the second quarter as collections jumped 9.4 percent from the same three months in 2012, Census Bureau data released yesterday show. Including municipalities, the year-over-year rise in tax revenue was the strongest since 2006.
While the pickup is certainly a relief to state lawmakers after leaner revenue years during the last recession, it’s unlikely such a pace of improvement can be sustained.
“The strong growth in overall state tax collections is mostly driven by very strong growth in personal income tax collections,” Lucy Dadayan and Donald J. Boyd of the Rockefeller Institute wrote last week. “However, the state tax revenue outlook remains cloudy for the rest of the calendar year 2013, particularly for states that rely heavily on personal income tax collections.”
Individual income tax revenue to states and local governments rose 18.2 percent in the second quarter after an 18.3 percent increase in the first three months. The back-to-back gains were the strongest since the first half of 2000. Personal taxes accounted for about 41 percent of total state revenue in the second quarter, according to the Census Bureau.
The surge in receipts was influenced by temporary factors. State personal income tax returns were due April 15 and these payments were probably inflated as Americans accelerated income into 2012 to avoid federal tax increases at the start of the year, according to Dadayan and Boyd. What’s more, a 19.4 percent jump in state income tax revenue was “largely driven” by higher income-tax rates in California, retroactive to Jan. 1, 2012.
“The `bubble’ in income tax receipts most definitely would be short-lived and in fact should lead to slower growth later in the year,” Dadayan and Boyd said. “Therefore, state officials should be cautious about using any unanticipated revenue for ongoing spending increases or revenue reductions.”
And while the recovery in the housing market is bolstering property values, it will take time for assessments to catch up and bring relief to local governments’ budgets. Property tax revenue rose 1.9 percent from April through June versus same three months in 2012, the biggest second-quarter gain since 2010, the latest Census data showed. Property taxes as a share of total state and local tax revenue was 24 percent, the smallest share since the second quarter 2008.