As reported by the N&O, North Carolina’s FY 2013-14 budget (which began July 1, 2013 and ends June 30, 2014) is now projecting a shortfall in revenue. That is, projected revenue for the year is now estimated to come up about $445 million short of the projected revenues they used when crafting the budget last summer.
The adjustment is based in part on April 15 tax filings and other trends related to last year’s tax overhaul and the federal budget agreement in late 2012 that led to higher tax rates from Washington, the memo said. Before April 15, analysts had reported that overall revenues for the first nine months of the year were on track with projections.
In other words, revenues were on target until data from the tax filing season came in. This is what budget analysts every year refer to as the “April surprise.” Sometimes there is a surprise in April regarding tax revenues, other years far less so. The N&O, along with their fellow traveler Josh Stein, hastily go into spin mode and blame this year’s April surprise on last year’s tax reform.
Senate Minority Whip Josh Stein, D-Wake, blamed the tax overhaul approved last year for the shortfall, saying Democrats knew it would allow the very wealthy to keep more money instead of providing revenues for things like teacher pay raises. “Now it turns out the tax (plan) doesn’t provide enough to pay our bills,” Stein said.
Small problem. The tax returns filed by April 15 are for last year’s taxes. The 2013 tax reform had yet to take effect. A significant contributor to the April surprise is the federal government’s “fiscal cliff” and the federal capital gains hike (as the N&O even acknowledges earlier in their article), which influences declared income. As noted by this Nelson A. Rockefeller Institute of Government state revenue report: “many taxpayers appear to have accelerated income from calendar year 2013 to calendar year 2012 to avoid higher federal tax rates, likely creating a “trough” in capital gains in 2013.” However, it should be noted that the revenue report from just before the “April surprise” data was revealed showed that personal income tax revenues were below expectations, and it was sales and corporate taxes coming in higher than expectations. The report notes the difficulty in projecting revenue for personal income taxes given the base-broadening aspects in last year’s reform that may not be reflected until next year’s filing deadline. Moreover, state income tax revenue is down across the country for the first quarter of 2014, according to the Rockefeller report: “Preliminary data for the January-March quarter of 2014 suggest that tax growth is softening significantly. Moreover, personal income tax collections may decline in the first quarter of 2014. With early data for January-March 2014 now available for forty-five states … personal income tax collections declined by 0.5 percent.” The media and their progressive allies are way too eager to try to spin revenue figures, and in the process continue to throw out ill-informed and misleading accusations. The bottom line is that revenue projections for state budgeting purposes is an impossible task, and in most years misses the mark significantly, even when there are no changes to the tax code. Most importantly, however, is not the accuracy of revenue projections. To address Sen. Stein’s concerns, if the revenue isn’t sufficient to pay state government’s “bills”, then the answer is to cut spending – not demand more money from taxpayers, making it harder for us to pay our bills.