State tax receipts dropped dramatically in December. State tax collections last month were nearly 15 percent below December of 2007. Jeff Robinson, a senior analyst in the Legislative Services Agency, says most of it reflects the deepening recession.
The amount of "withholding" for the personal income taxes Iowans pay to the state dropped over $39 million. Robinson says that’s not surprising since unemployment claims are on the rise.
"That’s starting up to get up into some pretty high levels right now," Robinson says. "I mean, the last few months have shown very high claims." The big drop in December means that for the state fiscal year which ends in June, state tax revenues are down .8%. Robinsons says with capital gains and other tax payments to the state expected to be weak in the second half of the fiscal year, state tax receipts overall are not likely to improve.
"Unemployment payments and first-time unemployment benefit payments are going up and that means they will probably continue to go up into the second half of the year, which will cost the withholding tax to fall even farther," Robinson says. "And combine that with no capital gains increases showing up on people’s tax returns, that would show us that the second half of the year could very well be worse than the first half of the year."
In mid-December, a three-member panel of financial experts predicted state tax revenues would decline by half a percent this budgeting year. Governor Culver ordered a 1.5%, across-the-board cut in the state budget a week later, but if tax revenues continue this downward slide, it’s likely more cuts will be necessary.