Second Quarter 2013 State Tax Revenues Exceed 2008 Peak, But Growth Expected To Slow

Thanks in part to tax-law changes that accelerated capital-gains taxes, overall state tax revenues in the second quarter 2013 surpassed previous peak collections in real terms from before the Great Recession, according to data reported by the Rockefeller Institute of Government in Albany, N.Y. But the Institute’s analysts also warned that preliminary data from the third quarter and other trends portend a slowing of growth rates in the second half of 2013.

State and local tax-receipts trends are important indicators of the capital-spending resources of publicly funded foodservice segments such as schools, corrections and public health-care facilities.

State tax collections grew by 9% in the second quarter ended June 30, the Institute reported, driven by growth of 18.4% in personal income taxes. These percentage gains do not factor out tax increases, other legislative changes or inflation.

It was the third consecutive quarter of strong state income-tax receipts, prompted by wealthier taxpayers front-loading capital gains in anticipation of increases in federal capital-gains tax rates Jan. 1, 2013.

Factoring out inflation, overall receipts were 0.4% higher than the second quarter 2008, before the recession. The four-quarter moving average, adjusted for inflation, is 5%. While this is a considerable improvement over the 2.1% real growth average of a year ago, it is down from the 6.9% real average in 2011, as the states were emerging from the recession.

On a regional basis, the Far West and Mid-Atlantic regions saw the strongest growth in receipts, up 14.9% and 10.2% respectively. The Plains states saw the slowest growth at 3.6%.

The Institute’s collection of preliminary data from 44 early reporting states for the third quarter suggests a distinct slowing of the rate of growth going forward. And other state revenue sources, source as sales tax, saw slower real growth in the second quarter.

Local tax revenues grew for the fourth consecutive quarter, after seven quarters of decline. The four-quarter moving average for local tax revenues, more than 70% of which come from property taxes, was 2.3%. While an improvement over a 2.2% decline a year ago and a 3% drop two years ago, these growth rates are significantly slower than historical averages.

The complete second-quarter Rockefeller Institute State Revenue Report, including detailed data on changes by state, is available at rockinst.org.

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