Thursday, March 11, 2010

Michigan Tax Revenue Shows Sharp Decline in February

The state's monthly revenue report for February was released today and my reaction was, "Recovery? What recovery?"

This statement from the report sums it up well: "Revenue from Michigan’s General Fund and School Aid Fund earmarked taxes totaled $474.3 million in February, down 28.8% from last year's level . . . February tax collections were approximately $132.3 million below the level expected. . ."

Year over year revenues are down 28%. This is stunning. A couple of points stand out as potentially contradictory. First, state income tax and business tax revenues are down 8.6% and 67.4%, respectively, on a year over year basis. That's a pretty dramatic drop, particularly for the business taxes. Frankly, that could be considered a collapse in revenues.

But, at the same time, strangely, sales tax revenues are up on a year over year basis. February saw a 5.2% increase over last year. How can these figures be reconciled? On the one hand, personal incomes are down and business incomes are way down, and on the other, sales are up?

There is some chatter lately that these sales tax increases over the last two months have more to do with income tax return money flowing back to taxpayers. For instance, in the state's revenue report, it is shown that the state issued $731 million in tax refunds last month, a 20% increase over February 2009. Federal statistics are showing a similar patter where taxpayers are filing taxes earlier than usual to collect refunds.

So, it might make sense after all that people are collecting large refunds and then spending much of that money, thus resulting in a boost in sales tax revenues. But this is hardly a true economic recovery, it's just another temporary residual blip based on factors that actually point to further economic decline.

Another case in point from today's news: Kent county home foreclosures up 42% in February from January. Hardly a sign of recovery.

1 comment:

  1. What happens when you take the working capital out of a business??? It falls flat on it's face. The largest Michigan tax increase in memory, both on businesses and individual households, took place a year and a half ago draining most working capital from businesses and households alike. State revenues are now locked in a death spiral. You have to be careful what you ask may get it. The answer as to why sales tax revenues have held up is the sales tax on motor fuels continues to climb with the increase in the cost of fuel per gallon. Never heard any complaints regarding that little bonus from it drains the last of the working capital from remaining businesses and households alike? PURE MICHIGAN INDEED!!!!!!!!!!