State tax revenues continue to tank

posted at 2:20 pm on January 8, 2010 by Ed Morrissey

With the media and the administration pushing the idea that economic recovery has already begun, the Rockefeller Institute for Government looked at one key indicator of economic activity — and discovered something else entirely.  The Obama hailed the initial estimate of 3.5% annualized third-quarter growth of GDP (revised downward twice to 2.2%) as the start of the rebound.  Yet state tax revenues fell by double digits in the same period, the third straight month of double-digit tax declines, and the fourth quarter only looks marginally better (via The New Editor):

Tax collections nationwide declined by 10.9 percent during the third quarter of 2009, the third consecutive quarter during which tax revenues fell by double-digit percentages, according to the latest report from the Rockefeller Institute of Government.

Combining current data with comparable historical figures from the U.S. Census Bureau, the Institute reported that the first three quarters of 2009 marked the largest decline in state tax collections at least since 1963.

Western states saw especially sharp declines in tax collections during the third quarter, while revenues fell by more modest levels in the Southeast, New England, Mid-Atlantic, and Plains regions.

For the fourth quarter of 2009, early data showed continuing declines, although the negative trend of the past year appeared to be moderating. For 38 early-reporting states, personal income taxes fell by 6.5 percent during October and November while sales tax collections declined by 5.5 percent.

This chart shows the difference in tax revenues between state and local collections, the latter of which mainly rely on property taxes rather than income taxes:

The only reason we may be seeing a rebound of sorts in Q4 for this data is because it calculates year-on-year.  The final quarter in 2008 showed a decline, although not particularly sharp, so that 2009Q4 has a lower baseline for comparison.  But for that matter, the tax revenues from the first three quarters of 2008 — which provided the comparative baseline for the three quarters of double-digit declines — also were anemic, at around 1% year-on-year growth.

Also, that “rebound” in Q4 that the RIG anticipates is a smaller decline, not an increase — in other words, a slowing of the rate at which it gets worse, not that revenues will increase.  A Q4 showing anything below the zero line means a decrease from 2008Q4, which already  had declined slightly from the 2007 Q4, which means that a -6.5% will look like an uptick on the chart but will really represent further losses — just at a slower rate.

States rely mainly on income, sales, and property taxes for revenues.  As the above chart shows, property taxes remain fairly stable, although the rate of growth declined over the last three quarters.  The rest of the taxes reflect economic activity in the states, and most of them are seeing deep recessions continue.  When 38 states show drops between 5.5%-6.5% in tax revenues in a quarter, it shows a decline in economic activity.  And when three-quarters of our states are in a recession, attempting to claim economic recovery in any practical sense is sheer folly.

Be sure to read the entire report.

Update: I called the Rockefeller Institute for Government “Rockefeller Center,” which is obviously wrong.  My apologies, and I’ve corrected it above.

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Hardin, Montana tried to sell a prison to an ex-con.

what is it with these “extra” prisons?

ConservativeTony on January 8, 2010 at 3:34 PM

According to the 9th circuit, states must now give all prisoners the right to vote.

MarkTheGreat on January 8, 2010 at 4:22 PM

Neither would our military, nor the peace and trade it supports, and thus, neither would our prosperity.

Count to 10 on January 8, 2010 at 3:52 PM

Most likely we would have a sales tax that would fund the military. I think a national sales tax rate would not get too high since (A) it is in your face everytime you purchase something and (B) it is a flat tax.

WashJeff on January 8, 2010 at 4:27 PM

Can’t the states just print their own money? Problem solved! – Juno77 on January 8, 2010 at 2:43 PM

Glen Beck demonstrates the answer to your question

heroyalwhyness on January 8, 2010 at 4:42 PM

17.3% FREAKING TOTAL UNEMPLOYMENT! And these bastards can’t understand this? Just wait until Timmy’s stint at the printing presses bears fruit.

GarandFan on January 8, 2010 at 4:43 PM

Whatever you do, DO NOT drill for oil or anything else and sell it NOR hire anyone to do it…!

Carry on.

Seven Percent Solution on January 8, 2010 at 4:48 PM

Any info on this?

jwolf on January 8, 2010 at 3:12 PM

Why would you even want to pay property taxes on ppoperty you’re going to lose?
I’m sure they probably haven’t been.

Badger40 on January 8, 2010 at 4:58 PM

Most likely we would have a sales tax that would fund the military. I think a national sales tax rate would not get too high since (A) it is in your face everytime you purchase something and (B) it is a flat tax.

WashJeff on January 8, 2010 at 4:27 PM

That’s why the dems are so desperate for a VAT, so voters don’t see it directly.

jarodea on January 8, 2010 at 5:37 PM has been all over this for a long time. Great site, he knows his stuff and does the digging our ‘journalists’ won’t. On the plus side, tax receipts weren’t down too much in Texas, and Lubbock actually showed an almost 1/2% increase!

bikermailman on January 8, 2010 at 5:45 PM

Late to this thread…but…
Does anyone know the percentage of income, from any given state; they receive from investments of their pension funds? Seams to me it should be substantial.

jerrytbg on January 8, 2010 at 7:21 PM

The 1st ‘stimulus’ was a state bailout. It prevented a much worse state shortfall and saved only Gov’t jobs.

Problem is that while Obama was doing that, he is destroying the private job sector at the same time. Less private sector jobs means less tax revenue.

Now, when the states run out of porkulus bailout money to pay their workers……that is when the ‘ol poop hits the fan….then states start declaring BK and the Feds don’t have the credit to back them up….

The big question is when will this start happening?

tatersalad on January 8, 2010 at 8:16 PM

What is the percentage of shares of Fortune 500 companies owned by government pension funds?
Anybody know?

jerrytbg on January 8, 2010 at 8:35 PM

All joking aside, it’s long past time that we as citizens understand that all these services are not ‘free’. We all have expected way too much of local/state gov’t

Speak for yourself, I don’t expect one thin dime from the government yet they take huge chunks of my money that costs me sweat and blood…Our politicians have written checks they can’t cash to every special interest group under the sun for decades. Social safey nets are overwhelmed with persons who think its a lifestyle choice not an safety net for temporary use under extraordinary circumstances. School boards are dominated by persons with no business sense and yet these people are deciding property tax rates in most locales. Governments everywhere have too many employees. Many of these employees drive new government cars and trucks, they have healthcare and fat pension plans and they get more vacation and earlier retirement than the majority of private citizens…Additionally, all levels of government are populated with persons who have never run a business…They are hopelessly out of touch with the reality of running budgets and getting jobs done on time and under budget…States, counties and cities need to realistically look at the demographics of the retirement age populations and the inherit revenue reduction that comes with these demographics. As well, forget about the lost first decade of this century in terms of growth rates. Housing is dead for years and every business associated with housing will suffer for years. Governments at all levels should look at rolling budgets back at least a decade because that is where their revenue stream is headed. Those who are smart and agressive in cutting costs will survive. Some will declare bankruptcy, some will get bailouts and all will sell unprecedented debt to avoid paying today what will have to be paid by their children…

Nozzle on January 9, 2010 at 6:28 PM