40 States Bank on Rising Tax Revenue In 2011

According to a new study 40 out of 50 states in the U.S. are anticipating a rise in tax revenue next year. Corina L. Eckl, author of the report and director of the fiscal affairs program at the NCSL, claims that 2011 will be the turning point for many local economies.

The Associated Press reports:

The vast majority of state governments are anticipating a rise in tax revenues this year after two years of sharp drops. Analysts caution that most states will face large budget gaps in the next few years.

Forty states forecast having an increase in tax receipts in the current fiscal year, according to a forthcoming report by the National Conference of State Legislatures. Slow economic growth is boosting proceeds from income and sales taxes.

That could reduce the impact of states' budget struggles on the economy. State budget shortfalls have led to widespread layoffs, tax increases, spending cuts and other measures that have restrained economic growth.

"We do think 2010 is the bottom and we are at a turning point," said Corina L. Eckl, director of the fiscal affairs program at the NCSL and author of the report.

Still, state officials aren't without enormous challenges. States will lose federal stimulus money in coming years and will struggle to close large budget gaps. Tax revenues are well below pre-recession level. High unemployment puts heavy demand on state-run social service programs.

Continue reading at Google.com…

Hawaii's Tax Revenue Slips In Recent Fiscal Year

Despite hopes that this would be a year of recovery, the state of Hawaii saw a drop in tax revenue this past fiscal year. Some officials believe this may be an inaccurate calculation, because some tax returns were withheld until the new fiscal year, so not all data has been collected.

According to the Associated Press individual income tax collections rose 14.5 percent in the fiscal year that ended June 30, compared with the same period a year earlier. Similarly, corporate income levy receipts increased 10.2 percent.

Moreover, the state's hotel tax collections rose 6.4 percent in fiscal year 2010.

At the same time, however, general excise tax receipts fell 4.4 percent, an indicator that consumer spending is still lagging.

Collectively, the state's general fund revenue dropped 0.5 percent for the fiscal year, the tax department reported.

The agency cautioned, though, that some tax refunds that normally would have been paid by June 30 were held back until the start of the new fiscal year, a moneysaving move instituted by Gov. Linda Lingle.

Obama Tells Panel on Federal Debt to Consider All Options

From NY Times.com:

As President Obama’s bipartisan commission on reducing the mounting federal debt headed to its first meeting on Tuesday, the president told its members that “everything has to be on the table” as they consider options for reducing spending and increasing tax revenue.

Mr. Obama, appearing in the Rose Garden at the White House, recounted some steps his administration has already taken to restrain the growth of annual deficits. But he said, “This alone will not make up for the years in which those in Washington refused to make hard choices and live within their means.”

“And it will not make up for the failure to level with the American people about the costs of the services that they value,” he added. “This is going to require people of both parties to come together and take a hard look at the growing gap between what the government spends and what the government raises in revenue. And it will require that we put politics aside, and that we think more about the next generation than the next election.”

The president was flanked by his choices to chair the commission: Alan K. Simpson, the former Republican senator from Wyoming, and Erskine Bowles, a Democrat and former White House chief of staff. With a grin, Mr. Obama saluted them for their courage in accepting the assignment — a nod to the low expectations that many in Washington have for the commission, given the polarization between the parties, especially in an election year.

Mr. Obama then left for Iowa for the next stop on his “Main Street Tour,” and the commission members walked across the street to an executive conference center for their three-hour inaugural meeting.

Cigarette Tax Bump in 15 States Lifts U.S. Fees to $2.35 a Pack

After cigarette taxes went up in 15 states during the year 2009, it brought the national average to an astounding $2.35 a pack. The average state tax assessed on a pack of cigarettes is $1.34, in addition to the $1.01 federal tax that was also increased last year. As this Bloomberg.com article explains, the various increases have resulted in more than $1 billion in new state and federal tax revenue.

Smoking rates in the U.S. fell about 15 percent in the last decade, though declines slowed in the last five years, according to the Atlanta-based CDC. Thomas Frieden, the agency’s director, has warned that decades of smoking reductions may be ending unless taxes increase and more money is spent on education.

“Increasing cigarette excise taxes is one of the most effective tobacco control policies,” the report’s authors wrote. “Additional increases in cigarette excise taxes and dedication of all resulting revenues to tobacco control and prevention programs at levels recommended by CDC could result in further reductions in smoking.”

Each $1-a-pack increase brings in about $9.1 billion in annual tax revenue, according to the report. A dollar increase, over time, also prevents about 1 million smoking-related deaths and stops 2.3 million children from becoming smokers, the CDC said.

Continue reading at Bloomberg.com…

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The Great Tax Drought of 2009

Recently the media has been given a lot of attention to job losses, and the ongoing health care debate, but one topic that has seemingly fallen off the radar is falling tax revenue. According to CNN Money, decreased federal tax revenue affect nearly all Americans.

Through the end of August, Uncle Sam collected 25% less in tax revenue for the year than during the same period a year earlier. The two biggest culprits were a 56% drop in corporate income tax revenue and a 20% drop in individual income tax revenue.

On balance, the Congressional Budget Office expects that tax receipts will be 14.9% of gross domestic product this year, well below the historical 18.3%average.

While revenue forecasts for next year are better, the CBO estimates tax receipts will only make up about 15.7% of GDP.

But two factors could lower that estimate. The first is whether or not the projections for economic growth and the unemployment rate prove too optimistic. If they do, that would reduce how much tax revenue Washington collects.

Continued at CNN Money.com…

New York Income Tax Revenue Falls 36% in Year, Paterson Says

Over the past year there have been dozens of reports of states struggling because of the recession. However, experts were shocked by the huge decrease in revenue the state of New York has seen over the past year. According to an announcement made by New York Governor David Paterson, the states tax revenue has fallen an astounding 36%.

The report comes out after what Paterson describes as a “frustrating” attempt to close the state’s budget gap, which exceeds $2 billion. Checkout the following article on the shocking announcement courtesy of Bloomberg.com.

“We added personal income tax, which we thought would make the falloff 10 percent to 15 percent,” Paterson, a Democrat, said on CNBC today, referring to $5.2 billion in new or increased taxes. “This is what is so frustrating. It’s still 36 percent, meaning our revenues fell more in 2009 than they did in 2008.”

Wall Street companies lost $42.6 billion last year and year-end bonuses to workers fell 44 percent to $18.4 billion. Income tax receipts were down 24 percent as of Aug. 31, according to the state comptroller’s office. Paterson’s estimate includes data since then.

Besides boosting taxes for the fiscal year that began April 1, lawmakers made $5.1 billion in spending cuts. The plan also includes $6.2 billion in federal stimulus money and $1.1 billion in one-time revenue, according to the Assembly.

The budget will still be $2.1 billion in deficit because spending plans exceed revenue projections, the state Division of Budget said July 30. The report predicted deficits of $4.62 billion in 2011, $13.3 billion in 2012 and $18.2 billion in 2013.

Mortgage Data could Help Catch Tax Cheats

According to a new article on Reuters.com, the Federal government could generate up to $1.4 billion in additional tax revenue by comparing mortgage interest statements from banks, with the deductions taken by taxpayers on their returns.

The Internal Revenue Service uses mortgage interest statements, known as 1098 Forms, to catch tax cheats. But a review of 200 samples for 2005 estimated that the agency may be missing tens of thousands of taxpayers who are not reporting or underreporting their income, the Treasury inspector general for tax administration said in a report.

"A large number of individuals are paying a significant amount of mortgage interest and either are not filing tax returns or are filing tax returns indicating their income is not sufficient to cover their mortgage obligations and basic living expenses," said the report, dated August 6.

"The considerable difference between expenditures and income raises very serious questions about whether these taxpayers have additional sources of income that should have been reported on their tax returns," it continued.

The IRS, in a response included in the report, said it agreed with the recommendation that it make greater use of mortgage interest data to track tax evaders. The report did find that the IRS collected $276 million from delinquent taxpayers based on mortgage data from 2005 returns.

Cities Brace for a Prolonged Bout of Declining Tax Revenues

A new study released today by the American League of Cities shows that local tax revenues are decreasing for the first time in 7 years. As if it was not bad enough, the same study also predicts that revenue will continue to decrease for up to two more years. Check out the following story below on the recent findings courtesy of the Wall Street Journal:

Weak growth in property taxes, reflecting soft housing prices, did not counterbalance sharp declines in other sources of income, including sales taxes, income taxes and state aid, according to a survey of 379 league member cities.

Overall city revenues declined by 0.4%, even as expenses rose 2.5%, and city officials expect steep drops in tax collections in the next two years, making for the worst outlook in the 24 years the group has been surveying its members. Western cities were particularly downbeat.

The gloomy mood "is indicative of the depths of the downturn, that they have the worst ahead of them, and the fact that the recession is universally hitting their revenue sources," said Chris Hoene, research director for the league.

Because employee wages, health care and pensions are a major component of municipal budgets, two-thirds of the cities reported hiring freezes or layoffs. Almost as many cities said they were postponing big construction projects.

Paper or Plastic? D.C. Taxes on All Disposable Bags

Earlier this week Washington DC council members passed a new tax in the amount of 5 cents on all disposable grocery bags. The decision was unanimous and as the council claimed it would greatly help the environment. Check out an article on the new tax below, courtesy of Wilja.com.

Mike Carter says that's "a good idea, if it's going to help the environment."

The tax impacts both paper and plastic disposable bags.

"I think it's a good thing if people are taxed on their bags," said Raisa Stebbins. "They'll stop using using bags -- better for the environment, better for the people."

The bill prohibits businesses from paying the fee on behalf of customers. Establishments caught not taxing customers face a $100 fine for the first violation, $200 for the second and $500 for the third violation within one calendar year.

"I like the concept of what they are trying to accomplish but as a general rule, I don't like taxes," said Peter Brown.

Four of the 5 cents from the new tax will go to cleaning up the Anacostia River. The other cent will go to businesses to off set the cost of implementing the new tax.

"It's an incentive for people to bring their own bags, so it could have a good effect," added Felicia Sonmez.

And if you do bring your own reusable bag, you won't be hit by the nickel tax.

Time For State, U.S. To Tax The Internet

From the SFGate.com:

Back in the dial-up days of the Internet, the remarkable new technology seemed certain to change our lives - if only it could grasp a fragile hold on the marketplace. Convinced that they were working for the greater good, politicians of all stripes agreed to maintain the Internet as a "tax-free" space, enabling consumers to grow accustomed to communicating, researching and shopping online.

As an editorial board, we championed this approach for many years. "The current moratorium on Internet taxes is justified," we wrote in 1999. "It gives the fledgling e-commerce industry a chance to develop and encourage innovation on the Internet."

Times have changed.

Ten years later, it's no longer possible for us to argue that anything about the Internet is fledgling. The technology has changed the way we learn, make friends - even find spouses. E-commerce, once a tiny segment of the American retail landscape, has done so well that it's ravaged long-standing brick-and-mortar business models.

It's also ravaged government tax coffers. In 2007, California alone lost about $1.2 billion in state and local taxes to customers using the Internet to make purchases from out-of-state retailers. Though taxpayers are legally bound to pay sales tax on these purchases, the reality is that no one reports it, and the state has no way to collect.

The economic downturn, combined with a genuine concern for struggling local retailers, has politicians all over the country taking a new look at taxing Internet purchases. We agree that the time has come.

There's no more rationale for out-of-state retailers to get a tax subsidy that our own local retailers aren't getting.

The ideal solution would be for Congress to institute a federal law allowing states to force out-of-state retailers to collect sales tax. Unfortunately, the efforts seem to be stalled at the federal level - that's where Internet industry and anti-tax advocates have been able to most effectively block legislation.

Their arguments are thin. They claim it would be too complicated. Sure, it wouldn't be easy. There are 50 states, and each of them has different laws about which items can be taxed and for how much. But so far, 36 states have signed on to the Streamlined Sales Tax Project, which would unify tax rules and definitions across state lines. Once all 50 states sign on, it would be fairly easy for some enterprising software designer to create a program for e-commerce retailers. And all 50 states are likely to sign on quickly if they know that federal legislation is pending.

Increasingly, though, penniless state legislatures are seeking to force Congress' hand. New York was the first state to require out-of-state online companies to collect sales tax on purchases sent to New York addresses - provided that the companies had at least one in-state agent or affiliate. The results of that law have been mixed: Many out-of-state online companies simply dumped their affiliate programs and continued avoiding taxes. But New York has collected more than $70 million in less than two years. And so far, the federal courts have upheld the statute.

Emboldened by New York's semi-success, Assemblywoman Nancy Skinner, D-Berkeley, has authored AB178, which would do the same thing in California. AB178 wouldn't be the full answer to California's sales tax collection problems. Like New York, we'd see some businesses simply dumping their affiliate programs, and they might choose to take the state to court. Both plans are inelegant solutions to a problem that must be dealt with at the federal level. But state legislators should still pass AB178, if for no other reason than it would push Congress to tackle the problem head-on.

"I do think, frankly, that if (AB178) were to pass, Congress would have to take some action on this," said Lenny Goldberg, executive director of the California Tax Reform Association. "Between California and New York, you'd see the discussion taking hold. AB178 would speed up the process."

AB178 is sitting in the Assembly Revenue and Taxation Committee. Recognizing that she has an uphill battle on her hands, Skinner designed it to be a two-year bill. But given California's fiscal disaster, legislators should recognize the urgency of passing a bill that would level the playing field for local retailers and force consumers to pay a tax they should be paying anyway.

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