State government April income tax revenue fell 4%, in what may be an early sign of the "Trump Effect" on taxpayer behavior, according to a study from the Rockefeller Institute of Government.
While there was 5.3% growth in withholding tax collections in April compared with April 2016, there was a 7.3% decline in final returns and a 4.3% decline in estimated payments over the same time period, the study found.
Two Rockefeller researchers found the results by looking at the April tax receipts for 41 states with broad-based income taxes.
The April declines were sharpest in the New England and Middle Atlantic states, followed by the Southern States. The month’s revenues rose in the Great Lakes and Rocky Mountain states.
Fiscal studies director Donald Boyd and senior research scientist Lucy Dadayan offered two possible explanations of the declines.
“Strong indications point to a ‘Trump Effect,’ i.e. individuals shifting income out of 2016 in the hope of benefiting from the promised cuts in federal tax rates the president proposed during the campaign," according to a press release announcing the study on Monday. "If this is the case, state income tax revenue would grow more strongly next year.”
Another possible explanation is that the decline in income tax revenue is due to a weakness in the 2016 economy that hasn’t yet become clear in published data. This would be a “harbinger of more trouble to come.”
New England was defined as Connecticut, Rhode Island, Massachusetts, Vermont, New Hampshire, and Maine. The Middle Atlantic states were Delaware, Maryland, New Jersey, New York, and Pennsylvania. The Southern states included Alabama, Arkansas, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Virginia, West Virginia, Arizona, New Mexico, and Oklahoma.
The Great Lakes were Illinois, Indiana, Michigan, Ohio, and Wisconsin. The Rocky Mountain states were Colorado, Idaho, Montana, and Utah.
For April and May total personal income taxes, the states with the biggest declines from a year earlier were Alabama with 16.5%, New York and North Dakota at 17.1%, and Iowa with 38.5%.
Cash flow in April and May was worse than expected. Of the 21 states that publish monthly cash flow forecasts, 19 of them were below projections. The median shortfall was 6.4% lower than a year earlier.
The author’s study is called “Shortfalls on States’ April Tax Returns: Trump Effect, Weak Economy, or Both?”