State Tax Revenue Forecasts and Actual Trends in …...State Tax Revenue Forecasts and Actual Trends...

State Tax Revenue Forecasts and Actual Trends in the Wake of the TCJAFTA Revenue Estimation Conference, 2018

October 8, 2018

Lucy Dadayan

State Tax Revenue Forecasts & Actual TrendsTCJA, South Dakota vs. Wayfair, Sports Betting

October 8, 2018

Lucy Dadayan

Overview: State fiscal and economic challenges! 10+$years$later$states$still$feeling$the$pain$of$the$Great$Recession

! State7local$taxes$only$13.4%$above$prior$peak! Variables$that$drive$revenue$hit$harder$than$broader$economy,$harder$than$before! State$government$tax$recovery$is$weak$and$slow

! Sales&taxes:$above$pre7recession$level,$but$stagnant! Personal&income&taxes:$stronger$recovery,$but$quite$volatile! Corporate&income&taxes:$NO recovery! Local&property&taxes:$continued$but$soft$growth

! Oil$&$coal7dependent$states$hit$hard! Declines$in$taxes$&$employment

! Growing$uncertainty$due$to$TCJA$and$other$federal$policiesWWW.TAXPOLICYCENTER.ORG 3

State taxes & the economy: States taxes are far more volatile

WWW.TAXPOLICYCENTER.ORG 4

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

1968 Q

1

1970 Q

1

1972 Q

1

1974 Q

1

1976 Q

1

1978 Q

1

1980 Q

1

1982 Q

1

1984 Q

1

1986 Q

1

1988 Q

1

1990 Q

1

1992 Q

1

1994 Q

1

1996 Q

1

1998 Q

1

2000 Q

1

2002 Q

1

2004 Q

1

2006 Q

1

2008 Q

1

2010 Q

1

2012 Q

1

2014 Q

1

2016 Q

1

2018 Q

1

Year-over-year change in inflation-adjusted state taxes and real GDPPercent change of four-quarter moving averages

Real GDPReal state tax revenue

Sources: U.S. Census Bureau (tax revenue) and Bureau of Economic Analysis (GDP).Notes: (1) Percentage change of 2-quarter moving averages; (2) No legislative adjustments; (3) Recession periods are shaded.

State Tax Revenues vs. State GDP: Growth disparity & large disparities among the states


AK

AL

AR

AZ

CA

CO

CT

DE FL GA

HI

IA

ID

IL

IN

KS

KY

LA

MAMD

ME

MI

MN

MOMS

MT

NC

ND

NE

NH

NJ

NM

NV

NY

OH

OK

OR

PARISC

SD

TN

TX

UT

VA

VT

WA

WI

WV

WY

94%

92%

0%

2%

4%

6%

8%

10%

12%

14%

0% 1% 2% 3% 4% 5%

StateFgo

vernmen

tFrealFtotalFtax

StateFGDP

Year9over9yearFpercentFchangeFinFinflation9adjustedFstateFtaxesFandFrealFGDPPercent'change'of'4.quarter'moving'averages,'2018Q1'vs'2017Q1'(red'lines'are'for'U.S.'average)

State & local government tax revenues:Only 13.4% above prior peak


-10%

0%

10%

20%

30%

40%

50%

60%

0 1 2 3 4 5 6 7 8 9 10Cum

ulat

ive

perc

ent c

hang

e sin

ce s

tart

of r

eces

sion

# of years since start of recession

Percent change in state & local government major tax revenue since start of recession

(PIT + CIT + Sales + Property) Four-quarter moving average, adjusted for inflation1973 1980 1990 2001 2007

Sources: U.S. Census Bureau (taxes) and Bureau of Economic Analysis (GDP).Notes: Data are shown only until the start of the next recession; 1980 & 1981 recessions are treated as single recession.

Volatile income tax; weak sales tax; stagnant “other” taxes; corporate incomes taxes still below prior peak


-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2007 Q

4

2008 Q

1

2008 Q

2

2008 Q

3

2008 Q

4

2009 Q

1

2009 Q

2

2009 Q

3

2009 Q

4

2010 Q

1

2010 Q

2

2010 Q

3

2010 Q

4

2011 Q

1

2011 Q

2

2011 Q

3

2011 Q

4

2012 Q

1

2012 Q

2

2012 Q

3

2012 Q

4

2013 Q

1

2013 Q

2

2013 Q

3

2013 Q

4

2014 Q

1

2014 Q

2

2014 Q

3

2014 Q

4

2015 Q

1

2015 Q

2

2015 Q

3

2015 Q

4

2016 Q

1

2016 Q

2

2016 Q

3

2016 Q

4

2017 Q

1

2017 Q

2

2017 Q

3

2017 Q

4

2018 Q

1

Cum

ulat

ive

% c

hang

e si

nce

star

t of r

eces

sion

Major tax revenues since the start of the 2007 recessionFour-quarter moving average, adjusted for inflation

Sales tax (state) PIT (state) CIT (state) Other (state) Property (local)

Sources: U.S. Census Bureau (taxes) and Bureau of Economic Analysis (GDP).Notes: (1) 4-quarter moving average of inflation-adjusted tax revenue; (2) No adjustments for legislative changes.

State taxes, adjusted for inflation & population growth, still below pre-recession in 22 states


Percent'change<"10%"10%&to&0%0%&to&10%>&10%

Percent'change'in'4-quarter'moving'average'of'state'tax'revenues,'2018q1'vs'2007q4Adjusted for'inflation'&'population'change'(U.S.'average'='2.9%; U.S.'median'='2.5%)

MI

VT

FL

OH

WV

AZ

CA

WI

NV

HI

PA

TN

MN

AR

IN

MO

ME

IA

MS

IL

VA

AK

GA

NM

OR

NY

KY

AL

NH

KS

ND

OKSC

SD

NE

NC

ID

CO

MT

WA

TX LA

UT

WY

RI

MA

MD

NJ

CT

DE

State government sales taxes: Recovery is extremely weak


42.5%

16.1%8.1%

-20%

-10%

0%

10%

20%

30%

40%

50%

0 1 2 3 4 5 6 7 8 9 10

Cum

ulat

ive

% c

hang

e si

nce

star

t of r

eces

sion

Years since start of recession

State sales tax revenue since the start of the recessionFour-quarter moving average, adjusted for inflation

1990 2001 2007

Sources: U.S. Census Bureau (taxes) and Bureau of Economic Analysis (GDP).Notes: 4-quarter moving average of inflation-adjusted tax revenue. Data are shown only until the start of the next recession.

State sales taxes: Actual collections vs. forecasts


4.0%

%0.5%

4.5%

3.8%

0.1%

3.7%

%1%

0%

1%

2%

3%

4%

5%

2018,actual,vs,2017actual

2018,actual,vs,2018forecast

2019,forecast,vs,2018forecast

U.S.,averageU.S.,median

Sales&tax 2018&actual&vs2017&actual

2018&actual&vs2018&forecast

2019&forecast&vs2018&forecast

#&states&with&<0%&growth 2 16& =

#&states&with&>5%&growth 10& = 12&

Sales tax base & collections: Shift to services


0%

10%

20%

30%

40%

50%

60%

70%

1968Q2

1970Q2

1972Q2

1974Q2

1976Q2

1978Q2

1980Q2

1982Q2

1984Q2

1986Q2

1988 Q

2

1990 Q

2

1992 Q

2

1994 Q

2

1996 Q

2

1998 Q

2

2000 Q

2

2002 Q

2

2004 Q

2

2006 Q

2

2008 Q

2

2010 Q

2

2012 Q

2

2014 Q

2

2016 Q

2

2018 Q

2

Goods and services as percentage of personal consumption expenditures

Durable goods

Nondurable goods

Services

Goods

Source: U.S. Bureau of Economic Analysis, National Income and Product Accounts, Table 2.3.5.

Substantial recovery in energy goods; modest growth in sales tax


-24%

-20%

-16%

-12%

-8%

-4%

0%

4%

8%

12%

16%

20%

24%

2000 Q

4

2001 Q

2

2001 Q

4

2002 Q

2

2002 Q

4

2003 Q

2

2003 Q

4

2004 Q

2

2004 Q

4

2005 Q

2

2005 Q

4

2006 Q

2

2006 Q

4

2007 Q

2

2007 Q

4

2008 Q

2

2008 Q

4

2009 Q

2

2009 Q

4

2010 Q

2

2010 Q

4

2011 Q

2

2011 Q

4

2012 Q

2

2012 Q

4

2013 Q

2

2013 Q

4

2014 Q

2

2014 Q

4

2015 Q

2

2015 Q

4

2016 Q

2

2016 Q

4

2017 Q

2

2017 Q

4

2018 Q

2

Year-Over-Year Percent Change in Sales Tax and Personal ConsumptionPercent change of four-quarter moving averages

Sales taxDurable goodsNondurable goodsServicesEnergy goods and services

Sources: U.S. Census Bureau (tax revenue) and Bureau of Economic Analysis, National Income and Product Accounts, Table 2.3.5.

State government personal income taxes:Stronger recovery, but volatile


69.9%

12.5%

20.4%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0 1 2 3 4 5 6 7 8 9 10

Cum

ulat

ive

% c

hang

e si

nce

star

t of r

eces

sion


State personal income tax revenue since the start of the recessionFour-quarter moving average, adjusted for inflation

1990 2001 2007


State personal income taxes: Actual collections vs. forecasts


Personal)income)tax

2018)actual)vs2017)actual

2018)actual)vs2018)forecast

2019)forecast)vs2018)forecast

#)states)with)<0%)growth 1 4) 5)

#)states)with)>5%)growth 30) 4) 17)

10.7%

2.3%2.8%

7.5%

2.3%

4.6%

0%

2%

4%

6%

8%

10%

12%

2018,actual,vs2017,actual

2018,actual,vs2018,forecast

2019,forecast,vs2018,forecast

U.S.,average

U.S.,median

April-May income tax revenues: Actual collections vs. forecasts


14.2%

5.9%

11.9%

2.9%

0%

2%

4%

6%

8%

10%

12%

14%

16%

%+change,April8May+2018+vs+2017

%+variance,+April8May+2018+actual+vs+forecast

Average+(24+states)Median+(24+states)

Income shifting & capital gains! In#concept,#taxpayers#can#shift#many#kinds#of#income,#but…:

! “Regular”#wages#– not#so#easy#@ work#less#now,#more#later! Bonus#wages#– easier#– firms#could#shift#out#of#Q4#into#Q1#or#vice#versa! IRA#distributions#– maybe#not#so#hard! Dividends#@ boards#of#closely#held#firms#could#delay#payouts! Capital#gains#@ easiest#@ defer#stock#sales#(rearrange#assets)K#concentrated#– 70%#of#cap#gains#claimed#by#just#0.7%#of#taxpayers


Capital gains are loosely related to the stock market


!60%

!40%

!20%

0%

20%

40%

60%

80%

Percent.change.vs..year.ago

Percent'Change'in'Capital'Gains'Realizations'vs'S&P'500,'by'Tax'Year

Capital.Gains .S&P.500

Sources:)Congressional+Budget+Office, https://www.cbo.gov/about/products/budget<economic<data#7 and+S&P500+from+Yahoo+Finance,+ +http://finance.yahoo.com/q/hp?s=^GSPC.

2012:.Fiscal.cliff.acceleration.of.capital.

gains

2013:.Capital.gains.trough.after.acceleration

2014:.Rebound.from.trough

State personal income taxes:Shortfalls last April; windfalls (?) this April


6%

-1% -3%

-10%-7% -8% -7%

5%

-4%

3%

10% 10% 11% 12% 13%15%

42%

14%

-15%

-5%

5%

15%

25%

35%

45%

RockyMountain

FarWest

Plains NewEngland

South-west

Mid-Atlantic

South-east

GreatLakes

UnitedStates

Year-Over-Year Nominal Percent Change; April 2017 vs. April 2018

Apr-17 Apr-18

Source: Individual state data, analysis by the author.

Withholding Was Substantially Stronger in January & April


7.0%

4.9% 5.2% 5.6% 6.0% 6.2%

7.9% 7.8%7.2% 7.5% 7.5% 7.3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Jul-1

7

Aug-17

Sep-1

7

Oct-17

Nov-17

Dec-17

Jan-1

8

Feb-1

8

Mar-18

Apr-18

May-18

Jun-1

8

Growth in Withholding Tax Collections State Fiscal Year 2018 Monthly and Year-to-Date

Monthly

Source: Individual state data, analysis by the author.

Large volatility in estimated payments


-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

2017

Q1

2017

Q2

2017

Q3

2017

Q4

2018

Q1

2018

Q2

Year-over-year percent change in estimated payments and S&P 500 indexEstimated Payments S&P 500

Source: Individual state data (estimated payments) and Yahoo Finance (S&P500). Analysis by the author.

State government corporate income taxes:There is NO recovery


28.4%

32.8%

-22.4%

-30%

-20%

-10%

0%

10%

20%

30%

40%

0 1 2 3 4 5 6 7 8 9 10

Cum

ulat

ive

% c

hang

e sin

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tart

of r

eces

sion


State corporate income tax revenue since the start of the recessionFour-quarter moving average, adjusted for inflation

1990 2001 2007


State corporate income taxes: Actual collections vs. forecasts


Corporate(income(tax

2018(actual(vs2017(actual

2018(actual(vs2018(forecast

2019(forecast(vs2018(forecast

#(states(with(<0%(growth 10 11( 3(

#(states(with(>5%(growth 15( 15( 20(

9.8%

4.4%

7.2%

3.1%

1.9%

6.0%

0%

2%

4%

6%

8%

10%

12%

2018,actual,vs,2017actual

2018,actual,vs,2018forecast

2019,forecast,vs,2018forecast

U.S.,averageU.S.,median

Local government property taxes:Continued growth


29.7%

34.9%

13.5%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0 1 2 3 4 5 6 7 8 9 10

Cum

ulat

ive

% c

hang

e si

nce

star

t of r

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sion


Local government property tax revenue since the start of the recessionFour-quarter moving average, adjusted for inflation

1990 2001 2007


Continued growth in housing prices & local property taxes


-9%

-6%

-3%

0%

3%

6%

9%

12%

1990 Q

1

1991 Q

1

1992 Q

1

1993 Q

1

1994 Q

1

1995 Q

1

1996 Q

1

1997 Q

1

1998 Q

1

1999 Q

1

2000 Q

1

2001 Q

1

2002 Q

1

2003 Q

1

2004 Q

1

2005 Q

1

2006 Q

1

2007 Q

1

2008 Q

1

2009 Q

1

2010 Q

1

2011 Q

1

2012 Q

1

2013 Q

1

2014 Q

1

2015 Q

1

2016 Q

1

2017 Q

1

2018 Q

1

Year-Over-Year Change in Housing Prices vs. Local Property Taxes Percent Change of Four-Quarter Moving Averages

RecessionHousing Price IndexLocal Property Taxes

Sources: U.S. Census Bureau (tax revenue) and Federal Housing Finance Agency, House Price Indexes data.

Growth in housing price indexes since the pre-recession peak: Large state disparities


-20%

-10%

0%

10%

20%

30%

40%

50%

60%

CTNVMD NJ RI FL ILDEAZ

NMVANHCAME VTMNNYMS WI MI AL

OHPAWVMOGAUSARMA IDNC IN SCAK HI

KY LAWYKS IAOKORMTWATNUTNESDTXCOND

Percent change in housing prices from pre-recession peak level2018 Q1 vs 2007 Q1

Source: Federal Housing Finance Agency, House Price Indexes data.

Oil & trouble


Oil & coal states: State tax revenues rebounding after 7 consecutive quarterly declines


5.6% 5.5%

7.6%

4.9%3.8% 4.2%

-0.1%

2.6% 1.9%3.6% 3.2% 2.4%

7.3%6.3%

4.8%3.5%

-2.9%

-6.1%

-12.7%-11.3%

-10.4%

-7.4%

-3.1%

4.1%6.0%

4.5%

13.5% 12.9%

-15%

-10%

-5%

0%

5%

10%

15%

2014Q4

2015Q1

2015Q2

2015Q3

2015Q4

2016Q1

2016Q2

2016Q3

2016Q4

2017Q1

2017Q2

2017Q3

2017Q4

2018Q1

Year-Over-Year Percent Change in State Taxes

Non-oil states Oil states

Source: Author's9analysis9of9Census9Bureau9data.

Oil & coal states: Despite recovery, state taxes still below 2015 Q1 levels


-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

2015Q1

2015Q2

2015Q3

2015Q4

2016Q1

2016Q2

2016Q3

2016Q4

2017Q1

2017Q2

2017Q3

2017Q4

2018Q1

Cumulative percent change in state total tax revenues

Oil states Non-oil states

Oil & coal states: Employment is also still below peak levels


-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Jan-15

Mar-15

May-15

Jul-1

5

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-1

6

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-1

7

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Cumulative Percent Change in Employment

Non-oil median stateOil median state

Source: Author's analysis of Bureau of Labor Statistics data.

Recap: Slow revenue recovery & growing revenue volatility! The$revenue$recovery$is$weak$&$prolonged$compared$to$previous$recessions

! Differing$fiscal,$tax$&$economic$structures$play$important$roles$

! State$tax$revenues$increasingly$more$reliant$on$economically$sensitive$taxes

! Income$taxes$rely$more$heavily$on$volatile$income$– capital$gains,$bonuses

! Sales$tax$bases$are$eroding$(taxation$of$goods$&$services$sold$over$the$Internet)

! Many$services$hard$to$tax:$politically,$legally,$administratively

! SingleDyear$cash$balance$is$the$goal$(gimmicks,$oneDtime$solutions)

! Demographic$changes$and$taxes

! No$serious$multiDyear$financial$planning

! Higher$reliance$on$more$regressive$taxes


Thank you!

Lucy%[email protected]

October%8,%2018


State Tax Revenue Forecasts and Actual Trends in …...State Tax Revenue Forecasts and Actual Trends...

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Transcript of State Tax Revenue Forecasts and Actual Trends in …...State Tax Revenue Forecasts and Actual Trends...