WASHINGTON -- State governments took in noticeably higher tax revenues during the first three months of this year, compared with the same period last year, a report from the Center for the Study of the States says.
State tax revenues were up 7.8% in the first quarter of 1992, as a result of tax rate increases and additional consumer spending that bolstered sales tax receipts, according to the report, which was based on a survey of budget officers in all states except Alaska.
"This report provides some confirmation that the economy is getting a little better," said Steven Gold, author of the report and director of the center, which is a part of the Nelson A. Rockefeller Institute of Government in Albany.
However, Mr. Gold was quick to add that states are not doing that much better than they were a year ago because most of the revenue gain came from higher tax rates rather than from higher tax receipts resulting from a growing economy. Excluding gains from higher tax rates, state tax revenues advanced 1% in the first quarter, the report says.
"You shouldn't give people the impression that states are doing that much better," Mr. Gold said. "The states are like a boxer, who was just knocked down. They've now staggered to their feet, but they're still woozy."
The report tracks revenues from three types of state taxes: sales, personal income, and corporate income. The three together represent roughly three-fourths of all state revenue.
Of the three, sales tax revenues posted the largest gain, up 8.0% overall, and up 2.8% if rate hikes are excluded, according to the report.
"The most promising sign from the report is that sales tax revenues are trending upward. They're still weak, but not as weak as they were," Mr. Gold said. "But the bad news is the recovery is tepid."
On the personal income side, state tax revenues increased 4.7% in the first quarter compared with a year ago, according to the report. However, when the effects of tax rate changes are excluded, personal income tax revenues fell 1.3%, according to Mr. Gold.
Change in State Tax Revenues
First Quarter 1992 Over First Quarter 1991
Personal Corporate Sales
Region Income Tax Income Tax Tax Total
New England +35.0% +24.3% -4.6% +6.0%
Mid-Atlantic +10.9 +9.2 +7.1 +17.2
Great Lakes +2.9 -2.4 +3.6 +2.3
Plains +3.8 -6.2 +6.9 +3.8
Southeast -3.1 +0.3 +7.6 +5.3
Southwest -6.6 -5.5 +3.8 +3.2
Rocky Mountain +24.2 +5.7 +8.0 +8.5
Far West -5.8 +16.0 +20.8 +8.7
United States +4.7% +6.4% +8.0% +7.8%
Percentage changes are for nominal revenue amounts and include
the effects of tax rate changes.
Source: Center for the Study of the States
"Each of the three major taxes reflects a different aspect of the economy ... The relatively small increases in the personal income tax reflects high unemployment and weakness in the growth of wages, salaries, and other forms of income," during the first quarter, the report said.
The report came as the unemployment rate during the first quarter rose to 7.3% in March from 7.1% in January, while personal income grew very modestly. During the quarter, the gross domestic product grew by 2%, the strongest showing since 1989.
But trends in personal income tax revenues do not tell the whole story, according to the report.
"Withholding taxes provide a better indication of underlying trends than does net income tax revenue, which is affected by refunds, the report says. "Although trends in withholding varied considerably from state to state, they provide some evidence of a stronger economy" in the first quarter.
Mr. Gold explained that state tax revenues take a double hit when a person loses his job. Not only does the person stop paying taxes on his wages, but he also usually moves into a lower tax bracket. Thus, people who lose their job during the year, even only temporarily, usually get bigger refunds, thus eating into total tax revenues.
State revenues from corporate income taxes in the first quarter were up 6.4% over a year ago, according to the report. However, Mr. Gold said the corporate tax is the least indicative of underlying economic trends because of volatility.
"Corporate revenue is highly variable, with payments from a small number of companies often causing large short-term fluctuations," the report says. Excluding Pennsylvania, which recently enacted two major tax changes, revenues from the corporate income tax were up only 1.8% in the first quarter, according to the report.
Mr. Gold said the overall report indicates a slight improvement in generating tax revenues. "But, you almost need a microscope to tell it," he said.
Mr. Gold predicts that states will continue their trend of raising taxes during 1992, but at a slower pace than in 1991.
"Not many additional big increases are likely this year, although numerous states will probably raise taxes in 1993 legislative sessions ... Because many states have structural deficits, even economic recovery will not make it possible for them to avoid the need for higher taxes next year," the report says.
In the short-term, state officials are generally not inclined to look for long-term solutions to their structural budgetary problems, Mr. Gold said. "Many states are currently relying on fiscal gimmickry," he said.
"Their revenue problem has gone from awful to just bad, but their spending problem is still acute," Mr. Gold said.
