Higher State Tax Collections Don't Offset Serious Problems That Remain

My alma mater has released a report on the state tax revenue collections, and while the Wall Street Journal highlighted the fact that the state tax revenues were up year over year, the reason for the increased revenues was that those states raised tax rates to achieve the gains.

The states did not see organic growth in tax revenues. Instead, these states saw gains only after imposing higher tax rates.

And there are several high profile states that continue to see declining tax revenues, even with the higher taxes. Meanwhile, corporate income tax collections remains off as sales and personal income tax collections have moderated.

The second-quarter gains were driven by growth in sales and income taxes, both of which have been raised in many states. Second-quarter sales-tax revenue increased 5.9% in the 47 states surveyed by the Rockefeller Institute, while the take from personal income taxes grew 1.6%. Collections from corporate income taxes, which tend to be volatile and are just a small slice of most states' collections, fell nearly 19% over the period.

Some 30 states saw tax revenue in the second quarter rise from a year earlier. Many of the strongest performers were places where collections were hard-hit by the recession. Florida saw a nearly 14% increase. Arizona—which, like Florida, has been among the states most affected by falling real-estate prices and lackluster construction activity—saw a 3.9% increase.

Still, revenue declined in several big states. In California, tax revenue declined 0.9%, despite a nearly 12% increase in income-tax collections largely driven by higher taxes, according to the Rockefeller Institute. Illinois saw revenue decline 7%, while Michigan's collections fell 3.8%.