After publishing RGD in 2009, I was asked to list some of the metrics that would indicate that I was wrong about the USA having entered the Great Depression 2.0. One of the more important ones was an increase in state and local tax revenues. So, it was interesting to read this report from the U.S. Census, which tracks annual state government tax collections.
State government tax collections totaled $704.6 billion in fiscal year 2010, down 2.0 percent from the $718.9 billion collected in fiscal year 2009. Although 2010 total state revenue figures have yet to be released, in 2009 total state tax collection accounted for 64.0 percent of the total state government revenue.
In 2010, 11 states reported a positive increase over the previous year’s total tax collections, up from five states in 2009. The reasons for each state’s year-to-year increases vary. For example, in the case of North Dakota, increased tax revenue was largely due to strength in severance tax revenues, which are taxes imposed for the extraction of natural resources. However, North Carolina’s revenue increase was largely driven by sales and gross receipts tax.
Four states experienced a decrease of 10.0 percent or greater in year-to-year tax collections. Prior to 2009, no state had year-to-year tax revenue declines of this magnitude since 2002.
That this is somewhat of a positive spin on the situation is readily apparent when one looks at the actual data. Although overall state tax revenue is only down 2 percent in 2010, it’s now down 10.21 percent from its 2008 peak and is lower than it was in 2007 or 2006. The comparison of the eleven states with positive growth in tax revenues to the four states with revenue contractions of more than 10 percent is simply bizarre; a more relevant one would be to point out that 39 states had declining revenues in 2010.
Also, five of those eleven states with tax revenue growth had growth of less than one percent. In the case of Maine, it was only 0.03%. One cannot reasonably say that the state economies were improving in 2010, only that they declined at a slower rate than in 2009.
Keep in mind that this slower rate of contraction took place despite the benefit of the enormous stimulus package, much of which, as we know from Paul Krugman’s
past recommendationscurrent complaints, went to the state governments. Now that the spending orgy has, at least temporarily, come to an end, we would anticipate that state tax revenues will again decline at an increasing rate in 2011. I can’t confirm that, though, because the monthly Iowa tax report that I use as a rough proxy is inconclusive; in April it looked like 2011 tax receipts would be down, while in May they look very positive.
Regardless, by the state tax metric, the central thesis of RGD still appears to be sound.