After Four Years of Uninterrupted Growth, Tax Revenues Decline in the First Quarter – Preliminary Figures for the Second Quarter of 2014 Signal Further Declines in Personal Income Tax

Source: Lucy Dadayan and Donald J. Boyd, Nelson A. Rockefeller Institute of Government, State Revenue Report, no. 96, August 2014

From the press release:
After four years of uninterrupted growth, states’ tax collections saw a decline in the first quarter of 2014. Preliminary figures for the second quarter of 2014 indicate further declines in personal income tax collections and possibly in overall state taxes, according to the latest State Revenue Report from the Rockefeller Institute of Government of the State University of New York.

State tax revenues softened significantly in the second half of 2013 and declined by 0.3 percent in the first quarter of 2014. The declines in overall state taxes were mostly driven by the decline in personal income tax collections. In the first quarter of 2014, personal income tax collections showed a decline of 1.2 percent. The declines in tax collections are not an indication of a slowdown in the economy, but are mostly due to the mirror-image effect of the initial fiscal cliff (when many taxpayers shifted income from tax year 2013 to tax year 2012 to minimize federal tax liability) on taxpayer behavior, which had driven tax collections upward a year ago. Moreover, most of the decline is attributable to a single state —- California —- where personal income tax collections declined by $2 billion, or 11.1 percent. If we exclude California, personal income tax collections show a growth of 2.0 percent in personal income tax collections and a growth of 0.6 percent in overall state tax collections. The large declines in personal income tax collections in California are due to the impact of the fiscal cliff, as well as at least partially driven by legislated tax changes. On November 6, 2012, California voters adopted Proposition 30, which increased the personal income tax rate on taxpayers making over $250,000 for single taxpayers and $500,000 for married taxpayers for a seven-year period that is retroactive from January 1, 2012, through December 31, 2018. As a result, many taxpayers chose to pay in January 2013, which resulted in a large spike in the first quarter of 2013….