Tax Revenues Plunge…Again
Kurt Brouwer July 20th, 2009
It is no surprise that tax revenues are falling at the Federal and state levels. After all, we are in a recession and that’s what happens. This chart from the Nelson A. Rockefeller Institute tracks the revenue decline. The NYT piece that accompanied the chart pointed out that overall tax revenues have declined at the steepest rate recorded [emphasis added]:
The anemic economy decimated state tax collections during the first three months of the year, according to a report released Friday by the Rockefeller Institute of Government. The drop in revenues was the steepest in the 46 years that quarterly data has been available.
So, what was this absolutely horrendous, heartstopping decline? It was 11.7%.
…Over all, the report found that state tax collections dropped 11.7 percent in the first three months of 2009, compared with the same period last year. After adjusting for inflation, new changes in tax rates and other anomalies, the report found that tax revenues had declined in 47 of the 50 states in the quarter.
That’s a big revenue drop, but far less than that experienced by thousands of businesses across the land. The problem, of course, is that politicians assumed that tax revenues would keep going up forever. Sounds a bit like those who thought real estate prices would never fall, doesn’t it? It is obviously not true that tax revenues don’t decline, nor has it ever been true as the chart below bears out.
Source: New York Times
Now, I could understand the consternation about plunging tax revenues if this had never happened in recorded memory. However, that’s not the case. Just look at the chart and you see a steep decline in the 2000-2002 time period. That was only seven years ago so I think most folks can remember that far back. And, during that period tax revenues fell almost as much as they are falling now.
In other words, this tax revenue decline is predictable. It happens whenever we have a recession and it should be something that all the politicians and bureaucrats at work in Washington DC, Albany NY, Sacramento CA and all points in between should be able to figure out. It also is something for which they should plan by cutting back a bit in the fat years so there is a cash cushion to fall back on during the lean years.
Via: Barry Ritholtz
See also:
Is a tax revolt brewing in California?
- Business , Economy , debt , deficit , healthcare , income taxes
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And watch out for the second quarter, it’s likely to be just as bad.
I’ve gradually come to the point of view that state governments are incapable of planning for recessions. Between 1972 and 1987 we had formal federal government revenue sharing. It might be time to consider restoring some form of it as an automatic macroeconomic stabilizer. If it already were in place we wouldn’t have to pass special legislation to bailout state governments (as we did with part of the stimulus) every time there’s a recession.
I complete disagree with the notion that adults elected to a position of responsibility at the seat of power for their state should be given a tool to avoid that responsibility for their actions or inactions regarding state deficits.
Nor do I think that the residents of any state that elect and re-elect people who avoid their responsibility should be assisted in continuing to avoid their responsibility either.
In MN, the state constitution says the budget must balance and it does.
… at least until [political comment aborted]
I have to agree with you jdm. For example, Indiana has done a good job of managing expenses such that they now have a surplus to cover plunging revenues. And, the Federal government is no better than the states at planning for recessions. The only difference is that it can run a deficit. If the Feds bail out the states in hard times, then the states will have even less incentive to be responsible. And, you would have the additional perverse incentive of penalizing those states that are responsible.
Kurt,
But it would be better for the nation if such things were judged according to the utility function of the nation. The nation should force savings on the states.