Budget Blog

April Tax Collections Slow from Record Highs

By Brian Sigritz posted 05-23-2023 11:39 AM

  


Early indications are most states saw declines in April tax collections compared to April 2022 (April represents the largest month for tax collections due to the tax filing deadline). The revenue slowdown was expected following record gains last April resulting from, at the time, employment growth, salary increases, strong stock market performance, higher corporate profits, increased consumer spending, and the impact of inflation. The revenue declines this April were largely related to the high baseline established last year, weaker overall economic growth, and declines in capital markets. Year-over-year comparisons were also affected by tax cuts enacted last year, and tax deadline extensions in some states due to the impact of natural disasters. Personal income tax collections from non-withholding sources have driven most of the slowdown in overall revenue growth, partly due to the poor stock market performance and less capital gains and estimated tax payments. Meanwhile, the withholding component of personal income taxes remained relatively strong due to low unemployment levels. Corporate income taxes, a very volatile revenue stream, appear to be coming in above forecast for most states. Additionally, most states have continued to see increases in sales tax collections, partly related to the impact of inflation, although there are signs of slowing growth in consumer spending.

While revenue growth slowed this April, states remain in a strong overall fiscal position. Most states had at least their second-best April ever for tax collections, and revenue totals remained near historic highs. In many states April tax collections exceeded forecast since states did not project last year’s record levels would continue. Additionally, most states are still projecting to end fiscal 2023 with a surplus partly due to gains earlier in the fiscal year. Looking forward, fiscal 2024 budget proposals assume another year of slower revenue growth following double-digit percentage growth in both fiscal 2021 and fiscal 2022. Despite ongoing economic uncertainty including the current debate surrounding the debt ceiling, states remain well positioned due to actions previously taken such as building up rainy day funds to record levels, paying down long-term debt, making additional pension payments, and using one-time funds for one-time purposes.

Resources

Below is a compilation of recent press articles detailing states’ April revenue collections. In addition, please visit NASBO’s website for links to updated state revenue forecasts.