May 12, 2011

Extra Revenue Has to Come from Somewhere

Justin Katz

Maybe the economy is improving in a way that folks like me don't feel. Maybe inflation is tied into the mix — somehow yielding state tax revenue without its actually meaning that the economy is improving. But when I read news like this, I can't help but wonder whether last year's ostensibly revenue-neutral income tax change is responsible, and in a way that bodes ill for the future:

A separate report on revenue collections through the first 10 months of the fiscal year, also released Monday, provided further evidence of an improving economy, with revenues running $76.9 million ahead of projections through April 30. Personal income-tax collections were up $62.1 million, or 7.8 percent, and other sources that were up included taxes paid by insurance companies, taxes on cigarettes and fees collected by state departments.

Accountants and employers are over-withholding income taxes, this year, to make sure their clients and employees are covered when the end of the tax year rolls around. That could mean that increased revenue, now, will translate into a whack at the budget at the tail end of fiscal '12.

Of course, the tax reform also shifted the burden toward working middle-class stiffs, so it could be that "revenue neutral" is turning out to mean an effective tax increase. Whatever the case, I'm with Gary Sasse:

"There is no fiscal justification for the governor’s sales-tax proposal," he said. "Fiscal conditions have changed."
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"employers are over-withholding income taxes, this year, to make sure their clients and employees are covered when the end of the tax year rolls around."

I'm getting hit for an extra $50 per month over last year, and I didn't change a thing! The Assembly did. So that's $600 a year that they've taken out of the local economy. How many other people are in my situation? If it's 100,000, then that's $6 million taken out of the local economy.

Thanks politicians!

Posted by: Patrick at May 12, 2011 2:06 PM

The Fed's QE2 program was designed to boost the "wealth effect," namely, to pump up the stock market and encourage investment to create jobs. Short term inflation in basic commodities is just alittle bitter pill we're supposed to accept. The bottom line is portfolios are booming, which is resulting in growing tax revenues.

FYI, I learned of you site from Steve Laffey and Colleen Conley.

Posted by: Country thinker at May 12, 2011 11:04 PM
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