STUMP » Articles » Taxing Tuesday: No, Really, Surprise Money! » 21 May 2019, 07:52

Where Stu & MP spout off about everything.

Taxing Tuesday: No, Really, Surprise Money!  

by

21 May 2019, 07:52

States That Struggled to Forecast SALT Changes See an April Tax Boon

States are enjoying windfalls after struggling to predict how President Donald Trump’s federal tax law changes would ripple through their revenue.

All 15 of the states that have reported April tax collections so far have seen them come in better than expected, according to a list compiled by National Association of State Budget Officers. California, Illinois and Connecticut are among them, and New Jersey is expected to report its tally next week. Governor Phil Murphy said this week that tax collections will be more than $250 million above projections.
…..
The influx is providing extra cash for governments already benefiting from the nearly decade-long economic expansion and is coming just as many set their budgets for the coming fiscal year. In some cases, it’s making up for shortfalls earlier in the budget year as tax revenue lagged official forecasts because of the difficulty in predicting how the U.S. tax changes, including the $10,000 cap on state and local deductions, would ripple down through the state capitals.

In California, for example, officials said that taxpayers procrastinated in filing their returns this year over concern that the new deduction limit would drive up what they owe. Then in April, the state collected about $3 billion more in personal-income taxes than Governor Gavin Newsom’s forecast, making up for a shortfall earlier this year and adding to the government’s swelling surplus fueled by stock market gains.

Thanks, Trump! (Oh, right, the SALT cap barely bites anybody with the lowered tax rates across the board.)

It still remains to be seen how much of the higher-than-expected revenue across states will be recurring or if it’s a one-time bounty, according to the National Association of State Budget Officers.

“We’re seeing good signals and good signs in the economy at large, that always would tend to be correlated with revenue growth,” said Matt Butler, a vice president and senior analyst at Moody’s. “Clearly growing revenue, all else equal, tends to be credit positive for the states.’’

A lot of this had to do with the federal taxable income definition changing… and that many states just use the federal definition, with a few adjustments.

Positive state tax revenues are surprising analysts

New Jersey and Illinois are the latest states to announce that revenue collections for the current fiscal year are running ahead of earlier estimates. The gains are putting to rest —for now anyhow — speculation that limits on deductions imposed by the 2017 Tax Cut and Jobs Act would negatively impact high-tax, Democratic-leaning states more severely than Republican states with lower levies.

For fiscally stressed states such as New Jersey, Illinois, and Connecticut, the surprise revenue gains are presenting opportunities to close budget gaps that have appeared in fiscal 2019 while also allowing for pension contributions to underfunded retirement systems to be at least maintained at their current rate, if not increased for fiscal 2020. But the increases in revenues are also giving states a chance to continue increasing their deposits of cash into rainy day funds against the day that the second-longest U.S. economic recovery since 1858 comes to an end.
…..
In Illinois, which benefited from a better-than-anticipated 35% rise in personal income tax collections in April, according to Moody’s, Gov. J.B. Pritzker, also a Democrat, proposed depositing $100 million annually into his state’s fiscal reserve if the legislature passes his plan to impose a graduated income tax on state residents. The state currently has just $9.9 million in rainy day funds, an insignificant sum compared with its $35 billion budget.

Rather than being set aside for emergencies, according to the budget document, the rainy day fund was “used as a tool to assist with cash flow until it was nearly drained.” It is little surprise that the Volcker Alliance gave the state a D average grade for fiscal 2016-2018 in Reserve Funds, the second-lowest mark, in our latest report, Truth and Integrity in State Budgeting: Preventing the Next Fiscal Crisis.

…..
Along with increasing their reserves, states should put into place strong rules governing rainy day fund withdrawals as well as for making future deposits. We have found that among the 50 states, only Arkansas and Kansas have minimal guidelines for replenishing budgetary reserves. And five states (Illinois, Kansas, Kentucky, Maryland, and Ohio) lack or have limited policies for tapping the funds, according to Volcker Alliance data.

But even in states with clear deposit and withdrawal rules on the books, governors and legislators may choose to override them.

Yeah, I don’t have much hope that this little windfall will be much help in getting these states to actually fix their huge overspending problems. The report being repeatedly referenced is this one.

WHEN GOOD NEWS IS BAD NEWS

Editorial: Surprises not always good

State revenue projections tend to be a dash of voodoo wrapped in smoke and mirrors, but this was extreme even for Illinois: Last week, it was announced the state in April got $1.5 billion more in personal income tax collections than anticipated.

The surprise gain – it works out to about 38 percent more than the projected amount — is a rare bright spot in a depressing financial climate dating back decades.

But let’s not break out the champagne yet. The state is still saddled with $8 billion in pending bills, a $3.4 billion deficit and $150 billion in pension issues.

…..

But it starts with knowing what we’re working with. What’s troubling about the April surprise is that it wasn’t predicted. The state Commission on Government Forecasting and Accountability forecasting office credited it to “very strong performances of both personal and corporate income taxes,” but “a precise component breakdown is not yet available for April’s income tax receipts.”

The state Department of Revenue, in a letter to lawmakers, was more salient, pointing to “the performance of the stock market, better federal reimbursement for Medicaid, the elimination of the federal state and local tax deduction and additional changes in the federal tax law” as factors.

In our view, such unreliability highlights just how much Illinois is on shaky ground and totally unprepared in the case of an economic slowdown.

If this is not a one-time windfall and the money continues, paying down pension costs and high-interest bills is a good place to start.

This is true for personal finances as well.

But let’s go back to the “unexpected!” mantra.

A few weeks back, I was at a roundtable discussion with Governing magazine, and one point that popped out at me was the amount of volatility in revenue amounts — that made it very difficult for municipalities/states to do financial projections (no kidding).

One driver of this is the “tax the rich!” attitude — by this, I mean more towards millionaire taxes, taxes of investment windfalls, etc. The more these boom-and-bust revenue sources become a larger percentage of government revenue, obviously the revenue streams are going to be more volatile.

Connecticut is a perfect example of this.

I found this site that has all sorts of CT state financial info.

I grabbed the data.

Let’s compare the actual revenue against “budgeted” revenue (these are inflation-adjusted, I suppose so you don’t see the nominal growth rate, which would really show how much taxes have grown.)

Uh huh.

And it’s primarily both personal income tax and sales/use tax variations that caused this:

Note that sales/use taxes are less variable than the personal income taxes. Hmmm.

But let’s look at percentage deviations of actual vs. budgeted:

And one last thing to think about — what percentage of state revenues are personal income tax?

So you’re having state revenues be more and more dependent on something that’s fairly volatile?

Look at the spending graphs. Are they as variable as revenue? Hmmmm?

SODA TAXES

Great news! Soda taxes work!

Sugary drink sales in Philadelphia fall 38% after city adopted soda tax, study finds

Sugary drink sales dropped 38% in Philadelphia after the city implemented a soda tax, according to a new study.

Philadelphia introduced a 1.5-cents-per-ounce tax on sweetened drinks on Jan. 1, 2017.

Some residents crossed city lines to buy soft drinks outside the city, partially offsetting what would have been an even steeper reduction, the University of Pennsylvania researchers found.

The whole point was to get people to go to a non-soda-taxing town to buy their sodas, right?

Beverage sales inside Philadelphia’s city limits dropped by 51% but were partially offset by an increase in sales just outside the city, resulting in a net decrease in soda sales of 38% in the area, researchers at the University of Pennsylvania found.

To measure how Philadelphia’s tax affected sales of sugary drinks, researchers analyzed scanner data from market research firm IRI during the year before the tax took effect and the year after. They analyzed sales in Philadelphia, neighboring communities and Baltimore, which served as a control group. They did not study people’s actual consumption habits or health outcomes.

I will make a prediction: the people of Philadelphia are just as fat & diabetic as they ever were.

Also: that the amount of actual soda consumed… did not drop by 38%. Note that they just looked at sales info in specific types of stores:

Researchers tracked sales in 291 chain drugstores, grocery stores and mass merchandise stores. The results do not include independent stores. The researchers analyzed sales in those retailers for a separate study, which is under review and has not yet been published.
…..
“Many Philadelphians avoid the tax by shopping for beverages outside the city,” he said, pointing to a study published late last year showing sales decreases in a soda tax city were offset by people buying sugary drinks outside the city.

Speaking as someone who doesn’t drink sugary sodas, hasn’t in years, and yet is fat (how can that be?), I find the whole thing idiotic.

I feel for the bodega owners who are finding their sales drop because of this bullshit.

Oh wait, what’s this?

NYT: Tuesday Could Be the Beginning of the End of Philadelphia’s Soda Tax

Three years ago, Philadelphia became the first major American city to enact a tax on sugary beverages, products that contribute mightily to the nation’s epidemic of obesity, diabetes and heart disease. When Philadelphians go to the polls on Tuesday in primary elections for mayor and City Council, they will be indirectly voting on its survival.

Though not on the ballot, the soda tax has become a heated issue in the city’s local elections this year, with emotions fanned in part by anti-soda tax television commercials and online ads paid for by the beverage industry. The two Democrats challenging Mayor Jim Kenney oppose the tax, as do a score of City Council hopefuls who decry the 1.5 cent-per-ounce tax as an unfair burden on the city’s poorest residents. The levy, on average, adds about 30 percent to the cost of sweetened beverages.

“In my district, 95 percent of the residents hate it,” said Councilwoman María Quiñones-Sánchez, who has introduced legislation that would study the tax and come up with possible alternatives. “The people who buy $7 lattes say the poor should be drinking water, but no one is considering the fact that my constituents live in food deserts with no access to fresh fruit and vegetables.”

….
In a cash-strapped city where a quarter of all residents live in poverty, Mr. Kenney sold the tax as a revenue generator, not a nanny-state gambit to change unhealthy habits. The City Council approved the measure, 13 to 4.

Wait a sec. If sales of sodas dropped 50% in Philadelphia due to the tax… how is it supposedly a huge revenue generator?

Industry executives say the tax is a failure and that it goes against the will of the people. “Beverage taxes hurt working families, small local business and their employees,” said William Dermody, a spokesman from the American Beverage Association, which news reports indicate has spent more than $1 million on the city elections from April 2 through May 6. “And polls show a majority of Philadelphians want it repealed.”

In a city with some of the nation’s highest rates of obesity and Type 2 diabetes, public health experts have a different concern: whether the tax is having a significant impact on people’s consumption habits.

A study published last week in the medical journal JAMA found that the law dampened supermarket sales of sweetened beverages by 38 percent; a study by Stanford University’s Graduate School of Business, published last January, put that number at 22 percent. Other studies have found less significant effect. Experts say it could be years to determine whether the policy has improved the overall health of the city’s residents.

Here’s a thought: you’re not their mama. Let people do stuff you don’t like because it’s NOT YOUR BUSINESS.

via GIPHY

Just a thought. Lots of us fat people don’t drink soda, and if you want to tax being obese, just tax that directly. Get us on the scales. (You want to talk about unpopular taxes?)

TAX STORIES

And to add on to why other countries go for a VAT — it’s because it’s the best way for them to actually collect tax:

In the United States, the Internal Revenue Service estimates, self-employment and farm income are underreported by over 60 percent. Even so, the personal income tax system in the United States works pretty well because most people have an employer. That’s not the case in many other countries.
…..
The success of VAT systems in emerging economies is welcome news for the beneficiaries of that tax revenue. It might be useful one day in the United States, too, and for another reason. Because a VAT taxes consumption, rather than income, it tends to encourage saving and investment.

I have no issue with a VAT, but, again, only in replacing existing taxes, not in addition to current taxes.

TAX TWEETS









Yes, the above is all about Australia…now for some non-Australian stuff.







Related Posts
Selling Universal Basic Income: Life is a Game!
RIP, James Spiotto, Municipal Bankruptcy Expert and Advocate for Long-Term Solutions
States Under Fiscal Pressure: California
| Main |