20 June 2024

States Hit by Drop in April Income Taxes

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(Reuters) - New Jersey, which revealed a massive budget shortfall this week, is far from alone in feeling the pinch of lower income tax revenues in the key month of April, a Reuters analysis shows.

Personal income tax collections plunged last month from a year earlier in 27 of 32 states for which Reuters was able to collect data. That's most of the 43 states that levy income taxes, and drops were as high as 50 percent.

While many states predicted tough times this year, a handful including New Jersey and Pennsylvania is set to face hard decisions on either cutting spending or raising taxes.

New Jersey, for example, is cutting state contributions to the pensions system by 60 percent for the next two years. By the end of last year, 26 states had still not seen overall tax revenue return to pre-recession levels, according to recent data from Pew Charitable Trusts.

"There are states that are more cautious, but there is also New Jersey. There is also Kansas, Pennsylvania," said Lucy Dadayan, a senior policy analyst at the Rockefeller Institute of Government.

"Their projections are more optimistic than the reality," she said. "They either have to cut services - have to cut on the spending side - or raise taxes."

Even overall, states' prospects for growth in the first half of calendar 2014 are "very, very weak," she added. "And then we'll see a very slow rebounding."

New Jersey this week emerged as the poster child for the issue. Governor Chris Christie unveiled a shortfall of more than $1 billion for the budget year ending in just six weeks. A massive drop in April income tax collections was the main culprit, although the state has not detailed just how far below target they were.

April is the most important month for income tax revenues because of state and federal filing deadlines, and taxpayers writing the biggest checks tend to file at the last moment.

Part of the drop in revenues reflects a rush to pay last year, before tax hikes took effect. Many sold stocks, for example, to take the tax hit while rates were relatively low. But the drop still signals that a key revenue source for many states will be weak this year.

Income tax revenues declined by an average of 13 percent from the previous April in the 32 states for which Reuters has data. Only five states took in more year over year: Delaware, Mississippi, Oklahoma, Oregon and Virginia.

Personal income taxes make up a little more than a third of states' total general fund revenue, and sales taxes comprise roughly another third. Just seven states - Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming - collect no income tax, and two others - New Hampshire and Tennessee - only tax dividend and interest income, not wages.

Click here for the full article from Reuters.

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