WASHINGTON — States face widespread shortfalls in personal income tax collections this year after experiencing growth last year, the Rockefeller Institute of Government reported Thursday.
Examining the January-to-April tax collections of 38 of 41 states that impose broad-based personal income taxes, the Institute found a 7.1% of $8.4 billion decline, when compared to the same period last year. It attributed the decrease to the "mirror-image of the federal 'fiscal cliff' that led to a one-time surge in income tax collections last year and a reversal of that effect this year."
The fiscal cliff refers to the end of 2012 when the so-called Bush income tax cuts were set to expire and across-the-board spending cuts were to become effective. Driven by fears that federal tax rates would go up, many taxpayers accelerated their estimated payments of income in 2012. As a result, capital gains may have substantially declined in 2013, despite the strong stock market performance.
"Declines in personal income tax collections were much anticipated, but the size of the declines surprised officials in many states," the Institute said. "It was extremely difficult for states to forecast personal income tax collections as it was hard to sort out the impact of income acceleration from tax year 2013 to tax year 2012, relative to the countervailing effect of the strong 2013 stock market."
Overall, 33 of the 38 states experienced personal income tax drops, ranging form a high of 31.1% drop-off in Ohio to a low of 0.6% in Pennsylvania. Five of the states reported increases.
