State tax collections declined in December, according to a report in Governing magazine.
Lower income tax collections is the culprit, according to data compiled by Governing of the top 10 most populous states with an income tax and with recent data available. Every state except Indiana saw a December drop compared with a year ago, ranging from -3.4 percent in Ohio to -41 percent in California.
States with high-income earners suffered the most, reporting double-digit drops in total tax collections. California saw the biggest dip, followed by New York, Massachusetts and New Jersey.
To help put income tax data in context, remember this:
While tax revenue nationwide through December is averaging 2.4 percent higher than last year, says Dadayan, income tax collections show a 1.6 percent drop. California and New York are two key states to watch going forward, she says, as they account for up to half of the nation’s income tax revenue in any given year.
Both California and New York rely heavily on highly progressive income taxes, increasing their susceptibility to collections volatility.
As Governing points out, some reduction in income tax collections was expected following federal tax reform, which affected taxpayer behavior. Yet, that doesn’t fully account for the dip.
Thanks to changes to income taxes and deductions under last year’s federal tax overhaul, thousands of taxpayers rushed to file income and property taxes in December 2017, creating an abnormal boost in revenue.
But the declines of this year were steeper than last year’s gains, says Lucy Dadayan, a senior research associate at the Urban Institute. “We might continue seeing weak growth in income tax revenues, particularly in these higher tax states, for the rest of the fiscal year.”