State income tax revenue may surge in April but at a price-report

Wed May 8, 2013 3:27pm EDT

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May 8 (Reuters) - U.S. state income tax collections are likely to have soared in April but that increase could be short-lived, said a report on Wednesday.

Not all states have yet released their April revenue figures, but some have and several are reporting big bumps in personal income tax collections, a major source of revenue for most states. California reported on Wednesday that it has collected $4.6 billion more than expected so far this fiscal year through April.

But the good news probably comes with a hitch: the surge stems in part from taxpayers who pushed income ahead into 2012 to avoid federal tax hikes that took effect in January, according to the report from the Rockefeller Institute of Government, an independent research group in Albany, New York.

"The temptation will be (for states) to treat it as recurring revenue available to support ongoing spending, or available for tax cuts," wrote the report's authors, Don Boyd and Lucy Dadayan.

"Caution is in order" as the temporary surge could mask underlying economic weakness, they said.

"Over the longer term, this could be bad news - it could mean that accelerated money received now, used to pay current bills, will not be there to pay for services in the future," they wrote.

For states still struggling to lift revenues above pre-recession levels, higher income tax collections could help plug budget holes.

Rockefeller reported last month that the fourth and final payment of estimated taxes to states rose by 25.2 percent. That's up from the 6.7 percent median increase for the first three payments.

On April 30, Connecticut raised its revenue forecast for 2013 by $240.6 million, putting the state on track for a surplus. At the same time, Connecticut revised downward its revenue projections for fiscal years 2014 and 2015, in large part because of one-time tax revenues in 2013 being brought forward from next year.

An April tax revenue boom might not necessarily be hiding a darker secret, however. It could also be due to an economy that was stronger the previous year than believed, Rockefeller said.

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