Thursday, October 05, 2006
First Quarter FY07 Revenues Are a Red Flag to Further Tax Cuts
With one quarter of the fiscal year past, weak state revenue trends are a glaring red flag against additional tax cuts during the looming lame duck session of the General Assembly.
Financial data published by the Ohio Office of Budget and Management (OBM) show that September's total tax receipts were off by $66 million, or 4.1%, compared to their revised FY07 projections. As a result, year-to-date tax collections were below the agency's estimates by $37 million, or 0.8%.”
On a year over year basis, collections are $80 million, or 1.8%, below collections compared to first three months of FY 2006. To a great extent the collections reflect the impact of the first phase of a 21% across-the-board income tax cut and other policy changes enacted in the state budget (HB66). The collections are also down due to Governor Taft’s executive order which caused an adjustment to personal income tax withholding tables. The order caused FY 2007 revenues to be an additional $290 million, or 1.5% below last year’s collections.
Here are the details of how Ohio’s tax reforms are performing through the first quarter.
September revenues compared to OBM estimates:
non-auto sales tax - $483.6 million, or $37 million (7.1%) below estimates;
auto sales tax - $76.2 million, or $4 million (5.1%) below;
personal income tax - $837 million, or $40.3 million (4.6%) below;
corporate franchise - $17 million, or $13.5 million above;
kilowatt-hour tax - $34.6 million, or $2 million (5.9%) above;
tobacco tax - $87.5 million, or $314,000 (0.4%) below;
total tax receipts - $1.55 billion, or $66.2 million (4.1%) below.
Fiscal year-to-date revenues compared to OBM estimates are:
non-auto sales tax - $1.589 billion, or $60.2 million (3.7%) below estimates;
auto sales tax - $253 million, or $840,000 (0.3%) below;
personal income tax - $2.057 billion, or $2.46 million (0.1%) above;
corporate franchise tax - $56.4 million, or $23 million (69%) above;
public utility tax - $45 million, or $361,000 (0.8%) above;
kilowatt-hour tax - $93.8 million, or $196,000 (0.2%) above;
tobacco tax - $195.6 million, or $953,000 (0.5%) below;
total tax receipts - $4.327 billion, or $37 million (0.8%) below.
And, how about the economic gain purchased with the tax cuts? Ohio’s economy continues to lag the national recovery. For instance, we are still 140,000 jobs below prior recession. Hardly an economic boom. Why? Because tax cuts simply don’t have the simulative impact proponents argue they do. Economists at the Federal Reserve Bank of Cleveland have explored a variety of causes of state economic growth, and found taxes play no role in stimulating incomes, jobs or output. In fact, my work and a recently released report by Policy Matters Ohio clearly demonstrates higher tax states have sronger economies.
In addition to the policy changes eroding state revenues, the consensus forecast for the national economy calls for growth to slow to 2.5 to 3 percent over the coming months.
With a huge tax cut already in place and slowing national economic growth, its hardly time to destabilize the state budget with further cuts to the income tax, capital gains tax, or estate tax during the lame duck session.
Financial data published by the Ohio Office of Budget and Management (OBM) show that September's total tax receipts were off by $66 million, or 4.1%, compared to their revised FY07 projections. As a result, year-to-date tax collections were below the agency's estimates by $37 million, or 0.8%.”
On a year over year basis, collections are $80 million, or 1.8%, below collections compared to first three months of FY 2006. To a great extent the collections reflect the impact of the first phase of a 21% across-the-board income tax cut and other policy changes enacted in the state budget (HB66). The collections are also down due to Governor Taft’s executive order which caused an adjustment to personal income tax withholding tables. The order caused FY 2007 revenues to be an additional $290 million, or 1.5% below last year’s collections.
Here are the details of how Ohio’s tax reforms are performing through the first quarter.
September revenues compared to OBM estimates:
non-auto sales tax - $483.6 million, or $37 million (7.1%) below estimates;
auto sales tax - $76.2 million, or $4 million (5.1%) below;
personal income tax - $837 million, or $40.3 million (4.6%) below;
corporate franchise - $17 million, or $13.5 million above;
kilowatt-hour tax - $34.6 million, or $2 million (5.9%) above;
tobacco tax - $87.5 million, or $314,000 (0.4%) below;
total tax receipts - $1.55 billion, or $66.2 million (4.1%) below.
Fiscal year-to-date revenues compared to OBM estimates are:
non-auto sales tax - $1.589 billion, or $60.2 million (3.7%) below estimates;
auto sales tax - $253 million, or $840,000 (0.3%) below;
personal income tax - $2.057 billion, or $2.46 million (0.1%) above;
corporate franchise tax - $56.4 million, or $23 million (69%) above;
public utility tax - $45 million, or $361,000 (0.8%) above;
kilowatt-hour tax - $93.8 million, or $196,000 (0.2%) above;
tobacco tax - $195.6 million, or $953,000 (0.5%) below;
total tax receipts - $4.327 billion, or $37 million (0.8%) below.
And, how about the economic gain purchased with the tax cuts? Ohio’s economy continues to lag the national recovery. For instance, we are still 140,000 jobs below prior recession. Hardly an economic boom. Why? Because tax cuts simply don’t have the simulative impact proponents argue they do. Economists at the Federal Reserve Bank of Cleveland have explored a variety of causes of state economic growth, and found taxes play no role in stimulating incomes, jobs or output. In fact, my work and a recently released report by Policy Matters Ohio clearly demonstrates higher tax states have sronger economies.
In addition to the policy changes eroding state revenues, the consensus forecast for the national economy calls for growth to slow to 2.5 to 3 percent over the coming months.
With a huge tax cut already in place and slowing national economic growth, its hardly time to destabilize the state budget with further cuts to the income tax, capital gains tax, or estate tax during the lame duck session.
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The glaring red flag I see is the monster-sized under-estimates of the corporate tax revenue. Why was this number so completely out of whack with the rest of the list? And from my eyes, does this mean that corporations are getting taxed way too much and that's why Ohio jobs are flying to Indiana or Kentucky or some other state?
And the larger question, I thought tax cuts meant less money would come to the state?
And the larger question, I thought tax cuts meant less money would come to the state?
# posted by 
: 10:35 AM
: 10:35 AM
While the details of OBMs October report haven't been published, prior reports provide some insight into the stronger than expected CFT collections. First, despite softness in the labor market, corporate profits have remained strong. As OBM correctly noted in its September report, this is good news since it's a positive sign for continued expansion. The other main contributor to the strong CFT collections is the timing of several large settlement payments early in the fiscal year. In prior years, the state actually refunded more than it collected well in to the second quarter of the state fiscal year. This year the state received a large payment early in the year.
The tax cuts have meant less money coming to the state. The biggest contributors to the GRF - sales and income taxes - were both off in September. And, the sales tax was below estimate through the first quarter. We have to wait until next month when quarterly filing are paid to see how the personal income tax is performing. Year to date, the personal income tax is meeting estimates.
Finally, it is clear that the policy effect of the HB 66 tax reforms will mean less revenues. That's not our estimate, it's the projection coming from OBM and the Department of Taxation.
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The tax cuts have meant less money coming to the state. The biggest contributors to the GRF - sales and income taxes - were both off in September. And, the sales tax was below estimate through the first quarter. We have to wait until next month when quarterly filing are paid to see how the personal income tax is performing. Year to date, the personal income tax is meeting estimates.
Finally, it is clear that the policy effect of the HB 66 tax reforms will mean less revenues. That's not our estimate, it's the projection coming from OBM and the Department of Taxation.
# posted by : 2:19 PM
: 2:19 PM << Home
