LANSING – Income tax collections in Michigan and most states have plummeted by 26 percent over the last year due to the severity of the recession, a study by the Nelson Rockefeller Institute of Government in New York said.
Michigan’s tax returns were even worse than the national average, falling by 34.4 percent from April 2008 to April 2009, the study said.
The state that saw the steepest decline in total income tax revenues during that time was Arizona, where income tax revenues fell by 54.9 percent.
The size and widespread scope of the declines makes it likely that severe budget cutting will have to continue into the 2010 fiscal year (which begins for most states in little more than a week) and that states will face major budget gaps in the 2011 fiscal year when stimulus payments from the federal government end.
The study looked at collections from April to April largely because that’s the month when estimated tax payments and the final tax payments are due from those with significant amounts of non-wage or salary income.
While nationwide withholdings, which make up the bulk of income tax revenues, were down by less than 10 percent during a period of January to May this year, estimated payments during the same time were down some 47 percent. Final tax payments for the same period were down by more than 40 percent, while refunds were up by nearly 22 percent.
In those regards, Michigan fared slightly better than many states in those categories, the study said. Withholdings in the state were down by 6.8 percent while estimated payments were down by 23.5 percent, final payments were down by 28.6 percent and refunds were up by 20.1 percent.
Bad Aprils are a greater predictor of how a state will fare fiscally going into the following budgetary cycle, the study said. Data on April collections can lead to forecasts of significant overall revenue declines from all other taxes and compel budget cuts.
Each state with an income tax varies on the importance the tax plays in regard to its overall revenues. In Michigan the income tax accounts for 28.7 percent of its revenues, the study said, while in many states it accounts for more than 50 percent. In Oregon, it accounts for 68.5 percent of that state’s total revenues and this year saw revenues down by 27 percent compared to the year before.
Just three of the states in the study saw income tax income revenues increase during the previous year, led by North Dakota (which also relies on income tax revenues for just 13.7 percent of its total revenues) which saw revenues increase by 15.5 percent. Income tax revenues increased by 11.1 percent in Alabama and by 4.4 percent in Utah.
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