New York’s rate of growth in withholding tax receipts during the final quarter of 2012 was among the lowest for any state with an income tax, according to the latest quarterly State Revenue Report from the Rockefeller Institute of Government. ***See Update at bottom of post.***
Withholding taxes are driven mainly by changes in employment and wages and thus serve as an indicator of economic growth. The Rockefeller Institute’s report says New York’s withholding receipts grew by 3.3 percent in the fourth quarter of 2013. That was less than half the national average of 7.8 percent, and also below the five-state Mid-Atlantic regional average of 4 percent. Only six of the 41 states with income taxes had lower withholding growth during the same period. (According to the same Rockefeller Institute report, New York’s employment growth in 2012 was also below average.)
One important caveat: on a year-over-year basis, New York’s personal income tax receipts in 2012 were reduced in part due to the Dec. 31, 2011, sunset of a portion of the “millionaires tax” that applied to incomes as low as $200,000. The extended tax applies only to incomes above $1 million for individuals and $2 million for couples. ***See added note at bottom of post.***
Quarterly “estimated payments” by high-income filers are another important component of personal income tax receipts. As Rockefeller Institute’s Lucy Dadayan and Donald Boyd explain:
The highest-income taxpayers generally make estimated tax payments (also known as declarations) on their income not subject to withholding tax. This income often comes from investments, such as capital gains realized in the stock market. Estimated payments represent a relatively small proportion of overall income-tax revenues … but can have a disproportionate impact on the direction of overall collections.
Estimated payments filed in mid-January for the final calendar quarter of 2012 rose strongly across the country, as high-income households rushed to cash in assets in advance of a federal tax hike that everyone expected to result from “fiscal cliff” negotiations at the end of the year. However, New York was below average in this category too — rising 22 percent compared to a national average of 29 percent.
Other New York State revenue indicators and national comparisons from the Rockefeller Institute tally of year-over-year changes for the fourth quarter of 2012:
- Combined personal income tax revenues were up 6.8 percent, compared to a national average of 10.8 percent.
- Sales taxes were up only 0.2 percent, compared to a national average of 2.7 percent. Sales tax was the revenue category hit hardest by the impact of superstorm Sandy last October.
- Corporate income taxes were up 5.2 percent, compared to a national average of 1.2 percent.
- Growth in all three major state tax categories combined came to 3.4 percent–below the national average of 5.2 percent, and ranking 36th out of 50 states for the period
The Rockefeller Institute report repeats a general warning that New York policymakers should heed:
States are on a revenue roller coaster, and there is a bumpy ride ahead. It will be hard for states to interpret revenue data in coming months, and hard to rule out the possibility that any short-run revenue surge is simply borrowed from the future. It will be tempting to treat unexpected revenue growth as a sign of continuing economic improvement, when it could mean instead that future revenue will be lower. Caution should be the watchword.
*** However, if one assumes that the roughly $1.75 billion in annual revenue attributed to the expired portion of the “millionaires tax” was distributed evenly among quarters of the year, than New York’s underlying base income tax growth in the fourth quarter actually would look quite strong.***
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