Income Tax Revenues Rising

Unexpectedly strong income tax revenues are outpacing the growth in sales taxes receipts during the tepid economic recovery differing from previous recoveries when the opposite was true, according to a Standard & Poor's report released May 2.

Several western states rich in natural resources also were singled out, because those states are generating revenues from severance taxes generated by mining and by oil and natural gas drilling.

The report titled, "Despite A Sluggish Recovery, Growing Tax Revenues Are A Positive Trend For U.S. State Credit" and related podcast on general state revenue trends said improved income tax collection differ from previous recessions, during which sales tax receipts experienced a quicker rebound.

Analysts David Hitchcock and Gabriel Petek noted during the podcast that some states, including Alaska, Montana, New Mexico, North Dakota, and Wyoming, have seen significant growth in revenues from severance taxes generated by mining and by oil and natural gas drilling.

The unexpected increases have had positive effects on both direct state receipts and their wider economies, according to the report. A nationally mandated sales tax on internet sales is unlikely to generate significant revenue, it said.

California, which collected an unexpected $5 billion in revenue in January and met expectations for April tax receipts, may have received the largest unexpected windfall.

"However, the state's own bottom line may not benefit as much as expected because the constitution requires it to turn much of these windfall revenues over to the schools," Petek said.

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