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Pew: States Revenue Forecasts Too Rosy

From the Wall Street Journal:

States Fumble Revenue Forecasts

MARCH 2, 2011

Many of the budget deficits that blindsided states—and sparked emergency tax increases and spending cuts—stem in part from the states’ unduly rosy revenue forecasts, a new study said.

In a report Tuesday, economists at the Pew Center on the States and the Nelson A. Rockefeller Institute of Government conclude that states increasingly overestimate their tax revenue during tough economic times. The report’s authors calculate that during the depth of the latest recession in 2009, income forecasts by all 50 states overshot reality by a total $49 billion.

Maybe they should rely on non-partisan organizations – like the Congressional Budget Office. (Just kidding, of course.)

"During downturns—when it matters more than ever for states to get it right—more states are not only getting it wrong, but making larger errors," the report said. The median state overestimated by 10.2% in 2009, with the least-accurate estimates in Arizona, New Hampshire, Oregon and North Carolina, all of which overshot by more than 25%, the study found.

So states are actually currently facing deficits that are even worse than we have been told? That is a surprising admission from the left-wingers at Pew.

That is the opposite of what happens during periods of normal economic growth: In 16 of the 23 years tracked, the median revenue estimate was under by 1.5%, leading to a $10 billion surplus nationally, in 2009 dollars.

Over the life of the 23-year study, the median error was 3.5%, or $25 billion in inflation-adjusted dollars.

And where did that $10 billion dollar surplus go? ‘Look for the union label.’

The inflated estimates during downturns lead states to constantly rebalance their budgets—by cutting services or raising taxes—as revenue comes in lower than planned. In New York, for instance, the state’s budget-gap estimate for the fiscal year that ends this June started at $4.6 billion, but eventually doubled to $9 billion, which eventually resulted in cuts across the state government, including aid to local governments and schools.

Low-ball estimates also can be a problem. Rather than saving the surpluses, lawmakers tend to cut taxes or spend the money on new programs, leading to bigger service cuts or tax increases when times eventually get tight.

Or, as is far more often the case during the good times, states give their public sector workers impossibly luxurious sweetheart deals on their salaries and benefits packages.

The off-the-mark forecasts are due in part to the increasing volatility of states’ revenue. States are depending more on income taxes to fund their operations—with the exception of the seven states including Texas and Florida that don’t have personal income taxes.

Since most states have done their level best to drive businesses out of their states. And when you have no businesses, it is hard to collect business taxes.

Income-tax revenue can fluctuate widely because the wealthier taxpayers who make up a large share of the tax base have relatively large gains and drops in their taxable income.

Huh. The Democrats and their media minions would have us believe that once you are ‘rich’ you are always rich. Besides, aren’t we told that the wealthy don’t pay taxes?

Meanwhile, sales-tax revenue hasn’t kept pace with economic growth—and is less predictable—due in part to outdated tax codes. Those tax codes miss a large portion of economic activity because they were written for a time when manufacturing was a larger share of the economy, when goods were bought in stores and not online, and people spent just a sliver of their income in the service sector.

So Pew is pushing for an internet sales tax.

Yes, that will solve everything.

This article was posted by Steve on Wednesday, March 2nd, 2011. Comments are currently closed.

7 Responses to “Pew: States Revenue Forecasts Too Rosy”

  1. GetBackJack says:

    This is Pew, remember.

    Who operate with funds purloined under the cover of corruption, deception and outright theft of the Pew founder’s express intent. J. Howard Pew, founder and billionaire owner of SUN OIL COMPANY. Whose specific statement of why he founded the Pew Charitable Trusts was …

    ” … acquaint the American people with “the evils of bureaucracy,” “the values of the free market,” and “the paralyzing effects of government controls on lives and activities of people,” to “inform our people of the struggle, persecution, hardship, sacrifice and death by which freedom of the individual was won” and to educate them about how “Socialism, Welfare statism [and] Fascism . . . are but devices by which government seizes the ownership or control of the tools of production.”

    Other People seized control of J Howard’s EARNED billions and corrupted his legacy to serve the Left.

    I do a bodily function on everything with the name Pew attached.

  2. NoNeoCommies says:

    The forecasts of us continuing to buy their bilge are too rosy.

  3. untrainable says:

    It strikes me that the states are only listening to the party line on Oblamer’s economy. If I’m not mistaken, we’ve been recovering from the “downturn” for 18 or 19 months now. The boy king has said that his laser focus on jobs will… do something positive. We’ve been told that last summer was the summer of “Recovery”. We’ve been told that we’re going to export more stuff, and that will create jobs. We’ve been told that credit markets will loosen up any time because of the bailouts and union payoffs. We’ve been told so many rosey lies that it’s no wonder that dem states are the worst offenders. They actually believe what they hear from Washington.

  4. BannedbytheTaliban says:

    I find it hard to believe NC underestimated how much tax they will take in. Afterall, from me they take:

    7.75% income tax
    8.25% sales tax (including local and transit tax)
    3% vehicle tax
    1.25% property tax
    3% liquor tax
    5.75% use tax
    30.5 c/gal gas tax
    extra taxes on cell phone, natural gas, electricity, water, television, internet, etc….
    license fees for hunting, saltwater fishing, freshwater fishing, vehicle registration, etc…

    Born free, taxed to death. And they keep electing democrat governors!

    • untrainable says:

      It works kind of like the drought / reduced water usage fiasco a while back. There’s a drought. They (the state) ask people to curb water usage. So the people curb their water usage. Then they claim that they have to raise the tax on water to make up for the reduced revenue caused by the curbed usage. So now, you get less water, and pay more for it. And then it rains.

  5. proreason says:

    Maybe the states haven’t received their windfalls from the Summer of Recovery yet.

    • JohnMG says:

      Well, if we’re 18-19 months into the recovery, sumpin’ tells me it’s gonna be a long time ‘fore we’uns is healed up.

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