States Income-Tax Revenue Reaches Post-Recession Peak

U.S. state income-tax collections rose the most since the recession in the three months ending in June, the Nelson A. Rockefeller Institute of Government said.

A tax increase in California spurred much of the growth, which would have been 15 percent without the Golden State, the Albany, New York-based public-policy research unit of the State University of New York said yesterday in a report. It also cited taxpayers shifting income to 2012 to avoid 2013’s higher rates.

“The ‘bubble’ in income-tax receipts most definitely would be short-lived, and in fact should lead to slower growth later in the year,” according to the report. “Therefore, state officials should be cautious about using any unanticipated revenue for ongoing spending increases or revenue reductions.”

The 18-month recession that began in December 2007 led to declines in income- and sales-tax revenue among U.S. states, forcing cuts in government programs and services. After five straight quarters of declining revenue starting at the end of 2008, growth resumed at the beginning of 2010, the report shows.

State personal income-tax collections grew about 20 percent compared with 6 percent in the same quarter a year ago, according to the report, which cited preliminary data from 46 states. It was the strongest quarterly growth since at least the first three months of 2007.

Revenue from income and sales taxes surged 11 percent, the second-biggest quarterly increase since the recession and trailing only an 11.3 percent spurt in the April to June period of 2011, the report shows.

In California, income-tax collections jumped by almost $7.1 billion, or 41 percent, in the second quarter after Governor Jerry Brown persuaded voters in November to approve higher rates to end persistent deficits. State voters in November raised the top rate to 13.3 percent from 10.3 percent for those earning more than $1 million, starting this year.

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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