News Release - April Tax Filing Deadline Delivers Bad News for State Revenues Across U.S., New Rockefeller Institute Report Shows

For Immediate Release –

June 18, 2009

Media contact: Mark Marchand – (518) 443-5283 / marchanm@rockinst.org

April Tax Filing Deadline Delivers Bad News for State Revenues Across U.S., New Rockefeller Institute Report Shows

January-April Personal Income Taxes Decline 26 Percent; Preliminary Data for May Show Decline Continuing

Albany, N.Y. — States that collect personal income taxes continued to suffer sharply declining revenues as the April 15 deadline for filing tax returns delivered troubling news, according to a Rockefeller Institute of Government report issued today.

The report — “April Is the Cruelest Month” — examined January to April tax collections for 37 of the 41 states that impose broad-based personal income taxes. It showed an overall decline of 26 percent, or $28.8 billion, when compared to the same period a year earlier. April income-tax collections were even worse than those in the preceding quarter, with a drop-off of $18.2 billion when compared to April 2008. April is the month during which states collect the most income tax revenue, because of the filing deadline.

“As we predicted in a previous report, tax returns on 2008 income that were filed in April show huge declines, likely due to stock market-driven declines in investment income and declines in bonus payments,” said Institute Senior Fellow Donald J. Boyd, who co-authored the report with Institute Senior Policy Analyst Lucy Dadayan. “The bad news from April collections makes it very likely that many states will be forced to consider budget cuts later this year. Further spending and revenue actions in 2010, and large budget problems when the stimulus assistance ends in 2011, are now more likely as well.”

Overall, 34 of the 37 states covered in the report experienced personal income tax fall-offs, ranging from a high of 54.9 percent in Arizona to a low of only a 0.3 percent drop-off in West Virginia. Three of the 37 states studied — Alabama, North Dakota, and Utah — saw an increase. Data were not available yet for Kentucky, Missouri, Mississippi, and New Mexico.

Preliminary data for May showed further decline. Thirty of 34 states for which data were available reported continuing declines in personal income tax collections. That overall decline was about 25 percent in May.

Personal income tax is one of three primary taxes collected by most states. The other two are sales taxes and corporate income taxes. On average, personal income tax represents about one-third of annual state revenues. For some states, personal income tax makes up well over half of annual revenues, while for others it can be as little as 13 percent.

Outlook

“Given the ominous picture of personal income tax collections, deeper overall revenue shortfalls and further deterioration in states’ fiscal conditions are likely on the way for most states for the April-June quarter of calendar year 2009,” Boyd said. “It is clear that state income tax revenue in April and May has fallen short of what states expected by many billions of dollars. Exactly how that will translate into new budget shortfalls is not clear, but budget gaps are likely to have increased by several multiples of the amount by which tax revenue has fallen short. Many states have begun revising their budget forecasts so that elected officials can take the new shortfalls into account as they finalize their budgets.”

Boyd noted that the situation will become even more critical when funds from the federal stimulus program expire in 2011.

For a full copy of the report, visit www.rockinst.org.

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About the Rockefeller Institute of Government

The Nelson A. Rockefeller Institute of Government, at the University at Albany, is the public policy research arm of the State University of New York. The Institute conducts fiscal and programmatic research on American state and local governments. Journalists can find useful information on the Newsroom page of the Web site, www.rockinst.org.

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