Tax Revenue Forecasts Are Lowered as States Enter Budget Negotiations
GFOA Newsletter: March 30, 2017
Based on recent tax revenue data, many forecasts could be revised downward further, creating uncertainty and potentially difficult choices for states, according to an analysis for state income and sales tax forecasts for fiscal years 2017 and 2018 from the Rockefeller Institute. In the face of uncertainties in the global economy, growing political risks in Europe, potential federal policy changes from the new administration, Federal Reserve Board actions, and changing demographics, many states have lowered their forecasts, expecting tax revenue to grow more slowly than they had projected in previous forecasts.
The report found:
The median state income tax forecast for fiscal 2017 was reduced from prior forecasts from 4% to 3.6%, and the median sales tax forecast for the same period has been adjusted downward from prior forecasts from 4.2% to 3.1%. Median income tax growth for 2018 is expected to accelerate slightly to 4.1%, up from 3.6% in 2017. Median sales tax growth for the same period is expected to accelerate slightly as well, to 3.5 percent, up from anticipated growth of 3.1 percent in 2017.
Although these state forecasts generally call for faster growth in 2018 than in 2017, the forecasted increase is small and expected growth is slow compared to longer-term trends: From 1981 to 2007, before the start of the Great Recession, state tax revenue growth averaged approximately 7% annually.