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States’ Increase in Tax Collections Buoys Optimism

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Illinois taxes
Illinois was among the states whose tax collections increased by more than 10 percent in 2011.
April 25, 2012 · Print · Email

The U.S. Census Bureau recently released 2011 Annual Survey of State Government Tax Collections, showing an increase in total tax revenue in all 50 states.  In comparison, only 11 states posted an annual increase in 2010. 

While this growth is encouraging, it will likely take years for states to fully recover from the effects of the Great Recession, according to Michael Leachman, State Fiscal Research Director at the Center on Budget and Policy Priorities

“States are still in a deep hole from this recession - about seven percent below they were before the economic downturn began, after adjusting for inflation,” he says.  “At the same time, costs for states remain high.” Unemployment - still elevated in most states - combined with healthcare inflation, which has risen disproportionately to general inflation are, among other factors, still exerting fiscal pressure on states.

North Dakota - the oil-producing “outlier”

Among the 50 states, North Dakota led the pack in gains for total tax collections, as well as individual income tax collections, up 44.5 percent and 42.6 percent, respectively.   “North Dakota has been an outlier with respect to other states, thanks to the big oil boom in the western part of the state,” says Leachman.

An August 2011 Governing article entitled, North Dakota’s Oil Boom is a Blessing and a Curse says, “Last year, the state produced 113 million barrels of oil – nearly tripling its pre-boom rate and making North Dakota the fourth-largest oil producing state, up from ninth just a few years ago."

According to the Census Bureau, other states with a 10 percent or greater increase in tax collections were: Alaska, Illinois, New Mexico, Wyoming, California, Idaho, Colorado and Minnesota.  None of these runners up posted numbers nearly as impressive as North Dakota’s.

Will the gain in state tax collections help local government coffers? 

 According to Leachman, the answer is “not necessarily.”

“States typically provide financial support for schools and other local government services.  When revenues increase, they may increase local aid – or restore earlier reductions in aid – but not necessarily.” How individual states respond to increasing revenues determines the amount of aid to be reinvested in local government - if any at all.  Some states may choose to cut taxes, or to bring back state-supported programs that had been put on hold for lack of funding.         

This recession, which has been, in many ways, historic, has left its mark on state and local governments alike.  While this improvement in state tax collections is cause for optimism, only those holding a crystal ball can predict the length of the road to full recovery.   

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