Ah, the thing few think about. With so many people out of a job, the middle class now squeezed bone dry, tax revenues are dropping like a stone.
A report, State Tax Decline in Early 2009 Was the Sharpest on Record (pdf), by the Nelson A. Rockefeller Institute, has some damning stats.
- State tax collections for the firstcquarter of 2009 showed a drop of 11.7 percent, the sharpest decline in the 46 years for which quarterly data are available. Combining the Census Bureau’s quarterly data with its annual statistical series, which extends back to 1952, the most recent decline in state tax revenues was the worst on record.
- After adjusting for inflation, legislative changes, and known anomalies, tax revenue declined in 47 states.
- The personal income tax decline was particularly sharp, an unprecedented 17.5 percent in nominal terms. The inflation-adjusted decline in state personal income taxes was the greatest in the 46 years for which quarterly data are available.
- Early figures for April and May of 2009 show an overall decline of nearly 20 percent for total taxes, a further dramatic worsening of fiscal conditions nationwide. Preliminary figures for the state fiscal year 2009 indicate around 8 percent decline in total taxes, 13 percent in personal income taxes, and 5 percent in sales taxes.
Scan down the entire report to corporate taxes. While they show most states barely collect them, the report shows what is collected is severely down as well.
Nominal corporate tax revenue decreased 18.8 percent in the January-March quarter compared to a year earlier, the seventh consecutive decline. All regions but the Far West and Southwest reported sharp declines, with the Rocky Mountain region reporting the largest decline at 65.8 percent. Among 46 states for which the Census Bureau reported corporate tax data, 37 showed decreases in corporate tax revenue.
On a national level, Matt Trivisonno also shows dramatic declines.
Trivisonno's blog uses Google Chart API (which is pretty cool, I'll have to check that out) and you can create additional charts from his site on tax collections.
Tax Revenues predicted the Great Recession of 2002
What's that you say? There was no "Great Recession of 2002"?
You wouldn't know that from the tax receipts info given above. Here the same graph in its original form as propogated around the internet the last few days:
Notice that YoY collections bottomed in Q2 2002. Of course you wouldn't have known that Q2 was the bottom until you saw the rebound in Q3 that would have been reported in Q4 2002 -- almost a year after the November 2001 end of the recession.
Tax revenues are NOT "dropping like a stone." The graph tells us that they did drop like a stone in Q1 and Q2 compared with Q1 and Q2 2008 -- telling us what we already knew, namely, that the economy was in free fall in Q4 2008 and Q1 2009. They tell us nothing about events going forward.
Now, if you tell me that seasonally adjusted, month over month tax revenues are still dropping, you've got a great point about the economy now.
What pulled us out of the recession in 2002?
Supply doesn't create its own demand, regardless of what JB Say (and the Reaganites) say.
If you are going to suggest that 2002 is a predictor for now, then you have to show what the sector that leads us out is.
In 2002, it was housing, and it was a bubble. Where's the bubble now? We are already maxed out as a nation. Debt driven growth isn't going to work.
So tell us NDD, what is out there that's going to take us out of the recession.
I'd suggest that at the moment we can only judge on the basis of the past.
The recession started in December 2007, and it was recognized until late summer of 2008.
I'd suggest that it's likely going to take the same amount of time to see a recovery. And that breaking out the champagne is a little premature until we have a least a quarter of positive GDP growth.
The burden of proof doesn't lie with the brown shoots crowd who point to a continuing trend. It lies with the green shoots crowd who are claiming that things are changing.
And, more I don't think that Bob is making a prediction here, just an observation.
Even yourself and Bondad are suggesting an L shaped "recovery", which means that we aren't going to see a rebound in state tax revenues.
The question then is how states will deal with that. And that opens up the door to a whole world of further problems that could hamper a future rebound.
I didn't dig into it that far....but
I'll stick with the offhand remark of dropping instead of dropped because the Rockefeller report only goes to Q1, 2009.
Then, a couple of things, most of the tax revenues are from W2, wages I noticed, so unemployment is still increasing, hence I expect tax revenue drops to continue.
Then, Bush "tax cuts", might have a little effect on the 2002 graphs, this is when budget deficits started growing so I wouldn't be surprised, then we had the housing bubble, with a lot of construction and property re-evaluations (property taxes).
But bottom line, this is an Instapopulist so to really see what's going on with tax revenues, history, etc. we need a longer time frame analysis, i.e. a blog post, much more research.
But the headline "worse on record" is a Q1 drop, I believe that's Q1 '08 to Q1 '09, so quarter to quarter slope.
The report has is long, I put this more up for others to read it, lots of graphs, analysis, but I did not pull any of it out of the report into this post, but there is a lot of material to deal with to put together a real longer term tax revenue analysis.
I don't have to answer a question I didn't pose
State Tax Receipts are coincident indicators, and on a YoY basis they lag.
All of the gloomy points you make above could also have been made exactly at the bottom of the Great Depression. Things don't suddenly get good, they improve by getting less bad.
And I'm not predicting an "L" shaped recovery. It is likely to be a "jobless recovery" but there is a surprisingly strong contrary argument to be made, on which more in about one minute.
If you want to make an assertion
and critique the work of others, you must be prepared to present support for your argument.
Yes, that's not happening.
Specifically talking about the state tax situation, state estimates don't see the revenue situation improving in the next year.
Most states have balanced budget articles in their constitutions, which means that carrying the problem over years is not an option.
In the long run, things may work themselves out. But this isn't an option when there are legal constraints that force the issue to be resolved this year.
I don't have to do your homework for you
I supported my argument that state tax collections, especially YoY, are a coincident to lagging indicator. You decided to change the subject to what pulled us out of the recession in 2002.
Well, I don't have to do your homework for you. If you want to find out what pulled us out of the recession in 2002, here's a place to start your education: http://www.research.stlouisfed.org
You might want to start by looking up manufacturing, durable goods, housing starts, and money supply on a month to month basis in 2002.
BTW, as to your preaching that those who believe the trend is changing have the burden of proof, I'm sure a couple of years ago you were saying the same thing about the housing boom and job increases, and praising Larry Kudlow about "the greatest story never told." Weren't you?
Nice personal attack
Not at all. I was working to elect a Democrat to office in 2002.
For much of the Great Lakes region, the "recovery" never really happened.
I worked my way through school, only two find myself holding down three part time jobs for a year after I graduated until I could find something full time. I didn't need to be told that the economy was shit. I saw it everyday. What were you doing in 2002?
This pattern of yours: launching into ad hominen attacks when someone challenges what you have to say isn't pretty. And frankly if if continues, should be grounds for giving you and EP timeout so that you can learn to play well with others.
The first personal attack was yours
Remember this: "So tell us NDD, what is out there that's going to take us out of the recession?" Instead of arguing a point, you made a personal attack on me.
Now you are upset that I fired back. How's the shoe feel on the other foot?
You say the burden of proof is on those who see a change in trend. So, the trend was booming house prices, increased jobs and increased income in 2006. What were you saying then? Did you put the same burden on those (like me) who said the trend was going to change, or did you trumpet the continuation of the trend?
And substantively, as to "what's going to lead us out of the recession," LEI just went up again 0.7% (almost exactly as I predicted), and coincident indicators are now beginning to look like they are bottoming too.
EP Time Out
EP Rules are when in doubt, use your calculator. So folks, don't get emotionally vested with economic prediction, it's like a bad date, sounds great at the time and invariably it will be what was I thinkin'?
See the poll at the right, come on, have some fun, lighten up and when debating, please let's stick to analytical discussion.
You're both fantastic writers as are the many other writers and economists also wrestling in the economic predictor muddle puddle at the moment. Tempers are flying around various sites.
Tempers are running high because of the disconnect.
There has always been a disconnect between what economic indicators are saying and what people are feeling on the streets.
A "recovery" does not have the same meaning in economic and in the street (not Wall St.). I am not saying anything profound.
My favorite disconnect is "stabilizing". To many "stabilizing" implies improving. But not necessarily. A trend can stabilize from not cliff diving anymore but still could be historically low.
Just trying to calm the heated rhetoric.
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