State taxes had "impressive improvement" in December

WASHINGTON (Reuters) - Tax collections in most U.S. states continued to grow at the close of 2010 as employment conditions improved, a survey released on Thursday showed.

In December, 76 percent of the states surveyed by economic newsletter The Liscio Report met or exceeded their forecasted withheld income tax collections, up from 66 percent in November and in line with October.

Also, 85 percent of the states said their collections had grown from December 2009.

“Even the states that missed their forecasts note an impressive improvement in withheld receipts, and most agree that labor markets are improving,” the newsletter said.

It added, though, that the increase in withheld income taxes “is coming from wages and hours worked, not employment growth.”

The housing market collapse, followed by the financial crisis and recession, caused revenue to crater in states. That created the worst fiscal conditions many states had seen in decades, as they scrambled to raise taxes and cut spending to keep their budgets balanced.

Now, states are limping back, with unemployment rates gently falling, spending rising mildly and revenue slowly climbing.

In December, salary bonuses also gave withholding receipts “a hefty lift,” Liscio reported.

Reporting by Lisa Lambert; Editing by James Dalgleish