WASHINGTON — Although state tax collections grew for a tenth consecutive quarter, they are still below 2008 levels and may weaken in the near future, according to the most recent analysis from the Rockefeller Institute of Government.
State tax revenues rose 3.2% for the second quarter of 2012 compared to the same period one year ago, according to the new report by Lucy Dadayan and Donald Boyd, analysts at the Institute, which is based at the State University of New York at Albany.
Compared to 2008, however, revenues remained down 2% and have actually dropped 7.7% after adjusting for inflation, the Rockefeller report states.
“Though most states have now reported growth in tax revenue collections for the last two state fiscal years, states still have a long road for full fiscal recovery,” the Institute announced.
The new report confirms preliminary data released in an initial Rockefeller release last month.
State tax revenue took a roller coaster plummet from the third quarter of 2008 through the close of 2009. The annual total peaked at $832 billion in the third quarter of 2008, and then dropped $110 billion to $723 billion in the final quarter of the following year. Revenue has grown continually since then, reaching $790 billion in the April-June quarter of this year, but continuing weaknesses in certain categories gave researchers pause.
The report points to less-than-encouraging sales tax data as one area of concern that could hamper a sustained and continuing recovery.
“Overall, the growth in state tax collections has been softening in the last four quarters,” the report warns. “The sales tax remains 10 percent below its level at the start of the recession.”
Other taxes collected also provided mixed news for states.
“The personal income tax has recovered substantially from its lowest level but is still about four percent below where it was at the start of the recession,” the Institute said. “Its recovery is in part an artifact of large tax increases imposed in several states, particularly California, Illinois, and New York; without those increases it would look weaker still. The corporate income tax fell sharply at the start of the recession and never looked back; fortunately, it is a relatively small share of tax collections in most states.”
Property taxes remain a bright spot. That revenue stream has remained above its pre-recession level on a national level, but there is a large state-by-state variation due to some state laws which make raising property taxes very difficult, such as proposition 13 in California.
“In sum, while state tax revenue is recovering, it remains well below where previous trends would have suggested,” the report concludes. “Furthermore, recent economic and revenue trends suggest tax revenue may weaken in coming months. While the worst may be behind states, they are not out of the woods.”