According to a study by the Rockefeller Institute of Government, state tax revenues are growing. The study found that overall state revenues increased by 2.4% in the first quarter of 2010, compared to the same period last year. However, the growth in revenue was largely due to tax rate increases in California and New York.
California and New York’s Tax Hikes
In 2009 California added 0.25% to each income tax bracket, increased paycheck withholding rates, and instituted a surcharge on millionaires. This surcharge is a 1% income tax in addition to the regular tax rate and kicks in at $1 million dollars of income. The surcharge is dubbed the mental health surcharge since the money is supposed to go to state mental health services.
New York added two additional tax rates aimed at high earning individuals in 2009: 7.85% on income over $200,000 and 8.97% on income over $500,000. In addition to the higher rates, people who have adjusted gross income over $1 million cannot claim itemized deductions, except for 50 percent of their Federal charitable contributions deduction.
Revenue Still Falling in Most States
According to the Rockefeller study, New York’s revenues rose by 15.8 percent and California’s by 19.1 percent, but tax revenues declined in 34 of the 49 states for which data was available. And when California and New York were excluded, total tax collections actually fell by 6.5 percent nationally in the first quarter of 2010 compared to the same period in 2009.
The two states with the biggest drop were Louisiana, with revenue dropping by 32.8 percent, and Montana with revenue dropping by 25 percent in the first quarter of 2010. The study cited the decrease in oil production, and therefore oil taxes, as the reason for the revenue decline in these two states.
Still Not Back to Pre-Recession Levels
Overall, the study stated, tax revenues in the first quarter of 2010 were down by 10.9% when compared to the same period two years ago. Personal income tax revenues took a similar hit, decreasing by 14 percent compared to the same period in 2008. So, even though states seem to be slowly climbing out of their fiscal hole, revenue still hasn’t made it back to pre-recession levels, and many state revenues are still falling.