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Finding causes for states’ tax return shortfalls

July 20, 2017

Many states took another hit to their budgets in April, with income tax revenue falling 4 percent compared to last year according to a new report from the Rockefeller Institute of Government. By the Numbers takes a look at the declining revenue, which it says was worse for April and May this year than had been forecast, but not as large as some states have experienced in recent years. Several explanations are explored, including a “Trump Effect” where taxpayers shifted taxable income out of 2016 and into 2017 in the hope of benefiting from a promised federal tax cut. The report also says that a weaker-than-estimated economy could play a role. Or, it could be that both forces were at work, the authors state.

To try to unravel the numbers, the Rockefeller Institute collected statistics for April and May –critical months for personal income tax receipts – from 41 states with broad-based income taxes. April income tax shortfalls or windfalls can play havoc with state budgets that are facing the end of their fiscal year and wrapping up budget negotiations for the coming year, the authors point out. Shortfalls this year resulted in many states extending the budget negotiation process, or missing the deadline and having to temporarily shut down as Maine and New Jersey did. Whether it was the Trump Effect, a weaker economy, or both, will only be determined through more time and data to accurately pinpoint the causes, the report concludes.

state revenue, state budgets