The Changing Revenue Landscape

Transcription

1 The Changing Revenue Landscape NCSL Legislative Summit, 2018 July 30, 2018 Lucy Dadayan

2 July 30, 2018 Lucy Dadayan State Revenue Trends and Volatility TCJA, South Dakota vs. Wayfair, Sports Betting

3 Overview State fiscal challenges Slow economic recovery Demographic changes Slower tax revenue recovery Growing reliance on non-traditional taxes Growing revenue volatility W WW.TAXPOLICYCENTER.ORG 3

4 State fiscal challenges 10+ years later still feeling the pain of the Great Recession Variables that drive revenue hit harder than broader economy, harder than before Revenue recovery is very slow Employment and wage recovery is slow Major cuts in state-local government employment Longer-term spending pressures loom Growing pension liabilities Growing Medicaid costs due to higher recession-related enrollment Growing uncertainty due to TCJA and other federal policies W WW.TAXPOLICYCENTER.ORG 4

5 Slow economic recovery Employment trends Slow recovery for private sector employment Deep cuts in state-local gov t jobs Personal income trends Slower growth in wages & salaries then in prior recoveries Retail sales Weak and slow recovery Goods and services Slow recovery in services and non-durable goods High volatility in durable goods Steep declines in energy goods and services, but currently rebounding W WW.TAXPOLICYCENTER.ORG 5

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7 Employment trends since the Great Recession: Dire picture for government employment Employment Sector Employment (in 1,000s) Percent change Recession June 2018 June 2018 Dec-07 Jun-18 Peak emp peak date vs Dec vs Peak Total nonfarm 138, , ,419 Jan Total private 116, , ,035 Jan State and local government 19,620 19,552 19,801 Aug-08 (0.3) (1.3) State government 5,139 5,100 5,214 Aug-08 (0.8) (2.2) State gov education 2,327 2,430 2,383 Aug State gov, non-education 2,812 2,669 2,830 Aug-08 (5.1) (5.7) Local government 14,481 14,452 14,610 Jul-08 (0.2) (1.1) Local gov education 8,055 7,956 8,119 Jul-08 (1.2) (2.0) Local gov, non-education 6,426 6,496 6,507 Dec (0.2) Source: U.S. Bureau of Labor Statistics, Current Employment Statistics (seasonally adjusted). W WW.TAXPOLICYCENTER.ORG 7

8 Cumulative percent change since start of recession Private sector employment recovery much slower compared to past recoveries 24% 21% Private sector employment in selected recessions 1973-Nov 1980-Jan 1990-July 2001-March 2007-Dec 18% 15% 12% 9% 6% 3% 0% -3% % -9% # of years since start of recession Source: U.S. Bureau of Labor Statistics (CES, seasonally adjusted). Notes: Data are shown only until the start of the next recession; 1980 & 1981 recessions treated as single recession. W WW.TAXPOLICYCENTER.ORG 8

9 Cumulative percent change since start of recession Deep cuts in state-local government jobs; Deeper than any other recession in the last 50 years 21% 18% State and local government employment in selected recessions 1973-Nov 1980-Jan 1990-July 2001-March 2007-Dec 15% 12% 9% 6% 3% 0% -3% % # of years since start of recession Source: U.S. Bureau of Labor Statistics (CES, seasonally adjusted). Notes: Data are shown only until the start of the next recession; 1980 & 1981 recessions treated as single recession. W WW.TAXPOLICYCENTER.ORG 9

10 Cumulative percent change since start of recession State-local government employment still declining, in contrast to the rebound in private employment 10% 8% Employment in selected industries in the current recession Private State gov. Local gov. State-local gov. 6% 4% 2% 0% -2% -4% -6% -8% Source: U.S. Bureau of Labor Statistics (CES, seasonally adjusted). W WW.TAXPOLICYCENTER.ORG 10

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12 Cumulative % change since start of recession Growth in salaries & wages slower compared to past recoveries 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% Salaries & wages for U.S. since start of recession Adjusted for inflation % # of years since start of recession Source: Author's analysis of data from Bureau of Economic Analysis (NIPA Table 2.1). Notes: Data are shown only until the start of the next recession; 1980 & 1981 recessions treated as single W WW.TAXPOLICYCENTER.ORG 12

13 Personal savings as share of disposable personal income 16% Personal savings as share of disposable personal income 14% 12% 10% 8% 6% 4% 2% 0% Sources: Author's analysis of data from Bureau of Economic Analysis (NIPA Table 2.1). W WW.TAXPOLICYCENTER.ORG 13

14 Cumulative % change since start of recession Real retail sales are weak compared to historical levels 33% 30% 27% 24% 21% 18% 15% 12% 9% 6% 3% 0% -3% -6% -9% -12% Real retail sales in selected recessions % # of years since start of recession Sources: Cleveland Federal Reserve Bank (pre-1990 retail sales), U.S. Census Bureau (1990+), Bureau of Labor Statistics (CPI). Notes: Data are shown only until the start of the next recession; 1980 and 1982 recessions are treated as single recession. W WW.TAXPOLICYCENTER.ORG 14

15 Consumption of durable & non-durable goods was hit hard 20% Year-over-year percent change in personal consumption Four-quarter moving average, adjusted for inflation 15% 10% 5% 0% -5% -10% -15% -20% -25% Durable Goods Nondurable Goods Services Energy goods and services Source: U.S. Bureau of Economic Analysis, National Income and Product Accounts, Table W WW.TAXPOLICYCENTER.ORG 15

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17 Ageing population: Growth in elderly population as share of total population 28% Age 0-18 and age 65+ as share of total population Age 0-18 Age % 24% 22% 20% 18% 16% 14% 12% W WW.TAXPOLICYCENTER.ORG 17

18 Ageing population forecasts 28% 26% Age 0-18 and age 65+ as share of total population Age 0-18 Age % 22% 20% 18% 16% 14% 12% W WW.TAXPOLICYCENTER.ORG 18

19 Problems associated with aging population: Lower income and lower income tax for older individuals Total income falls for older individuals Retirement income usually less than pre-retirement earnings Aggregate retirement income is growing rapidly, but total income of retirees is lower than before retirement Tax breaks! For example: Exclusion of Social Security income, public pensions, private pensions, IRA/401(k) withdrawals Additional personal exemptions and credits for the elderly 36 of 41 states with broad-based income tax provide exclusion for some retirement income (beyond Social Security), or elderly tax credit NOT: CA, NE, ND, RI, VT W WW.TAXPOLICYCENTER.ORG 19

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21 State taxes & the economy: States taxes are far more volatile 18% 15% 12% 9% 6% 3% 0% -3% -6% -9% -12% -15% -18% Year-Over-Year Change in Inflation-Adjusted State Government Taxes and Real GDP Percent Change of Two-Quarter Moving Averages Real GDP Real state tax revenue Sources: U.S. Census Bureau (tax revenue) and Bureau of Economic Analysis (GDP). Notes: (1) Percentage change of 2-quarter moving averages; (2) No legislative adjustments; (3) Recession periods are shaded. W WW.TAXPOLICYCENTER.ORG 21

22 Slower tax revenue recovery 10+ years after recession start, state-local taxes only 13.4% above prior peak State government tax recovery is weak and slow Sales taxes: above pre-recession level, but stagnant Personal income taxes: stronger recovery, but quite volatile Corporate income taxes: NO recovery Local property taxes: continued but soft growth Oil & coal states hit hard Declines in taxes & employment Growing reliance on sin taxes (gambling, marijuana, etc.) Gambling revenues: declines & cannibalization W WW.TAXPOLICYCENTER.ORG 22

23 Cumulative percent change since start of recession State & local government tax revenues: Only 13.4% above prior peak 60% Percent change in state & local government major tax revenue since start of recession (PIT + CIT + Sales + Property) Four-quarter moving average, adjusted for inflation % 40% 30% 20% 10% 0% % # of years since start of recession Sources: U.S. Census Bureau (taxes) and Bureau of Economic Analysis (GDP). Notes: Data are shown only until the start of the next recession; 1980 & 1981 recessions are treated as single recession. W WW.TAXPOLICYCENTER.ORG 23

24 Cumulative % change since start of recession Volatile income tax; weak sales tax; stagnant other taxes; corporate incomes taxes still below prior peak 25% 20% 15% Major tax revenues since the start of the 2007 recession Four-quarter moving average, adjusted for inflation Sales tax (state) PIT (state) CIT (state) Other (state) Property (local) 10% 5% 0% -5% -10% -15% -20% -25% -30% Sources: U.S. Census Bureau (taxes) and Bureau of Economic Analysis (GDP). Notes: (1) 4-quarter moving average of inflation-adjusted tax revenue; (2) No adjustments for legislative changes. W WW.TAXPOLICYCENTER.ORG 24

25 State taxes, adjusted for inflation & population growth, still below pre-recession in 22 states Percent change in 4-quarter moving average of state tax revenues, 2018q1 vs 2007q4 Adjusted for inflation & population change (U.S. average = 2.9%; U.S. median = 2.5%) WA MT ND ME OR MN VT NH ID WY SD WI MI NY MA CT CA NV UT CO NE KS IA MO IL IN OH KY WV PA VA RI NJ DE MD TN NC AZ NM OK AR SC MS AL GA TX LA AK FL HI Percent change <-10% -10% to 0% 0% to 10% > 10% W WW.TAXPOLICYCENTER.ORG 25

26 Cumulative % change since start of recession State government sales taxes: Recovery is extremely weak 50% 40% State sales tax revenue since the start of the recession Four-quarter moving average, adjusted for inflation % 30% 20% 10% 16.1% 8.1% 0% -10% -20% Years since start of recession Sources: U.S. Census Bureau (taxes) and Bureau of Economic Analysis (GDP). Notes: 4-quarter moving average of inflation-adjusted tax revenue. Data are shown only until the start of the next recession. W WW.TAXPOLICYCENTER.ORG 26

27 Sales tax base and collections: Shift to services 70% Goods and services as percentage of personal consumption expenditures 60% 50% 40% Durable goods Nondurable goods Services Goods 30% 20% 10% 0% Source: U.S. Bureau of Economic Analysis, National Income and Product Accounts, Table W WW.TAXPOLICYCENTER.ORG 27

28 Cumulative % change since start of recession State government personal income taxes: Stronger recovery, but volatile 80% 70% 60% 50% 40% State personal income tax revenue since the start of the recession Four-quarter moving average, adjusted for inflation % 30% 20% 20.4% 10% 12.5% 0% -10% -20% Years since start of recession Sources: U.S. Census Bureau (taxes) and Bureau of Economic Analysis (GDP). Notes: 4-quarter moving average of inflation-adjusted tax revenue. Data are shown only until the start of the next recession. W WW.TAXPOLICYCENTER.ORG 28

29 April-June personal income tax collections are very volatile 40% Year-Over-Year Nominal Percentage Change for April-June Quarters 30% 20% Preliminary figures (April & May) 10% 0% 2009 Q Q Q Q Q Q Q Q Q Q2-10% -20% -30% Withholding Estimated payments Final Payments Total PIT -40% Source: Individual state data, analysis by the author. W WW.TAXPOLICYCENTER.ORG 29

30 State personal income taxes: Shortfalls last April; windfalls (?) this April 45% 35% Apr-17 Year-Over-Year Nominal Percent Change; April 2017 vs. April 2018 Apr-18 42% 25% 15% 10% 10% 11% 12% 13% 15% 14% 5% 6% 3% 5% -5% -15% Rocky Mountain -1% Far West -3% Plains -10% New England -7% -8% Southwest Mid- Atlantic -7% Southeast Great Lakes -4% United States Source: Individual state data, analysis by the author. W WW.TAXPOLICYCENTER.ORG 30

31 Income shifting and capital gains In concept, taxpayers can shift many kinds of income, but : Regular wages not so easy - work less now, more later Bonus wages easier firms could shift out of q4 into q1 or vice versa IRA distributions maybe not so hard Dividends - boards of closely held firms could delay payouts Capital gains - easiest - defer stock sales (rearrange assets); concentrated 70% of cap gains claimed by just 0.7% of taxpayers W WW.TAXPOLICYCENTER.ORG 31

32 Capital gains: Big contributor to income tax volatility Capital Gains as Percentage of GDP 8% % % 5% 4% % 2% 1% 0% Source: (1) Capital gains for are from US Treasury and for are from CBO at (2) GDP from Bureau of Economic Analysis. W WW.TAXPOLICYCENTER.ORG 32

33 Percent change vs. year ago Capital gains are loosely related to the stock market 80% 60% Percent Change in Capital Gains Realizations vs S&P 500, by Tax Year 2012: Fiscal cliff acceleration of capital gains 2014: Rebound from trough 40% 20% 0% -20% -40% -60% 2013: Capital gains trough after acceleration Capital Gains S&P 500 Sources: Congressional Budget Office, Finance, and S&P500 from Yahoo W WW.TAXPOLICYCENTER.ORG 33

34 Cumulative % change since start of recession State government corporate income taxes: There is NO recovery 40% 30% 20% State corporate income tax revenue since the start of the recession Four-quarter moving average, adjusted for inflation % 28.4% 10% 0% -10% -20% -22.4% -30% Years since start of recession Sources: U.S. Census Bureau (taxes) and Bureau of Economic Analysis (GDP). Notes: 4-quarter moving average of inflation-adjusted tax revenue. Data are shown only until the start of the next recession. W WW.TAXPOLICYCENTER.ORG 34

35 Cumulative % change since start of recession Local government property taxes: Continued growth 40% 35% Local government property tax revenue since the start of the recession Four-quarter moving average, adjusted for inflation % 30% 29.7% 25% 20% 15% 13.5% 10% 5% 0% -5% Years since start of recession Sources: U.S. Census Bureau (taxes) and Bureau of Economic Analysis (GDP). Notes: 4-quarter moving average of inflation-adjusted tax revenue. Data are shown only until the start of the next recession. W WW.TAXPOLICYCENTER.ORG 35

36 Continued Growth in Housing Prices and in Local Property Taxes 12% 9% Year-Over-Year Change in Housing Prices vs. Local Property Taxes Percent Change of Four-Quarter Moving Averages Recession Housing Price Index Local Property Taxes 6% 3% 0% -3% -6% -9% Sources: U.S. Census Bureau (tax revenue) and Federal Housing Finance Agency, House Price Indexes data. W WW.TAXPOLICYCENTER.ORG 36

37 Oil and trouble W WW.TAXPOLICYCENTER.ORG 37

38 Oil & coal states: State tax revenues rebounding after 7 consecutive quarterly declines Year-Over-Year Percent Change in State Taxes 15% Non-oil states Oil states 13.5% 12.9% 10% 5% 5.6% 5.5% 4.8% 3.5% 7.6% 4.9% 3.8% 4.2% 6.0% 3.6% 4.1% 4.5% 3.2% 2.6% 2.4% 1.9% 7.3% 6.3% 0% -0.1% -5% -2.9% -3.1% -6.1% -10% -11.3% -10.4% -12.7% -15% Source: Author's analysis of Census Bureau data. -7.4% W WW.TAXPOLICYCENTER.ORG 38

39 Oil & coal states: Despite recovery, state taxes still below 2015 q1 levels 15% 12% Oil states Cumulative percent change in state total tax revenues Non-oil states 9% 6% 3% 0% -3% -6% -9% -12% W WW.TAXPOLICYCENTER.ORG 39

40 Oil & coal states: Employment is also still below peak levels 5% 4% Non-oil median state Oil median state Cumulative Percent Change in Employment 3% 2% 1% 0% -1% -2% -3% Source: Author's analysis of Bureau of Labor Statistics data. W WW.TAXPOLICYCENTER.ORG 40

41 Gambling fever W WW.TAXPOLICYCENTER.ORG 41

42 Gambling Landscape Since Great Recession 10+ states legalized lottery, casino, and racino operations Raise revenue in response to poor state fiscal conditions Stimulate economic development Counteract interstate competition for gambling revenue Attract tourism & keep gambling residents & tax dollars in-state W WW.TAXPOLICYCENTER.ORG 42

43 Billions More Gambling, Not Much More Revenues Since The Great Recession $30 $27.7 Real State & Local Government Gambling Revenue, FYs $28.6 $28.0 $28.2 $28.1 $26.7 $27.2 $26.7 $25 $20 $18.2 $17.5 $17.9 $17.4 $18.4 $18.6 $18.4 $18.2 $15 $10 $5 $0 $5.4 $4.9 $4.9 $5.0 $5.2 $5.5 $5.4 $5.4 $2.8 $2.9 $3.0 $3.1 $3.2 $3.2 $3.2 $3.3 $1.1 $1.1 $1.3 $1.1 $1.1 $1.1 $1.1 $1.0 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Sub-total Lottery Casino Racino Pari-mutuel Indian casinos (7 states) W WW.TAXPOLICYCENTER.ORG 43

44 Compound Annual Growth Rate, FY Wide Regional Disparity in Lottery Revenue Growth Rates 1.5% Compound Annual Growth Rates for Real Lottery Revenues, FY % 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% Sources: Author's analysis of lottery revenue from state lottery financial reports. W WW.TAXPOLICYCENTER.ORG 44

45 Cumulative real percent change Wide Regional Disparity in Tax and Fee Revenues from Casinos and Racinos 40% Cumulative Percent Change in Inflation-Adjusted Casino and Racino Taxes and Fees, By Region Northeast Midwest South West 30% 20% 10% 0% FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY % -20% W WW.TAXPOLICYCENTER.ORG 45

46 Cumulative real percent change Steep Declines in Casino and Racino Tax & Fee Revenues in Early Adopter States 8% 6% Cumulative Percent Change in Inflation Adjusted Casino and Racino Taxes and Fees, All States vs. Late Adopter States All States Early adopter states 4% 2% 0% -2% FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY % -6% -8% Sources: Author's analysis of data retrieved from state gaming regulatory agencies. Notes: The following three states - Kansas, Maryland and Ohio, are identified as late adopter states since all three states started casino/racino operations after FY W WW.TAXPOLICYCENTER.ORG 46

47 Lessons from gambling revenues: Short-term relief, long-term disappointment Gambling expansion brings in more revenue, until a saturation point is reached Stiff inter-state competition for the same pool of customers Significant increases in tax and fee revenues in newly adopted casino and racino states Significant declines in tax and fee revenues in the older casino and racino states Some new revenue represents a shift, rather than net growth Future growth in gambling revenue will not keep pace with tax revenue, or spending If gambling revenue is intended to support part of the overall budget, gaps may emerge in future years Gambling is a slow-growing revenue source & not a solution in the never-ending quest to balance the budget W WW.TAXPOLICYCENTER.ORG 47

48 Recap: Slow revenue recovery & growing revenue volatility The revenue recovery is weak & prolonged compared to previous recessions Differing fiscal, tax & economic structures play important roles State tax revenues increasingly more reliant on economically sensitive taxes Income taxes rely more heavily on volatile income capital gains, bonuses Sales tax bases are eroding (taxation of goods & services sold over the Internet) Many services hard to tax: politically, legally, administratively Higher reliance on more regressive taxes Demographic changes and taxes Single-year cash balance is the goal (gimmicks, one-time solutions) No serious multi-year financial planning W WW.TAXPOLICYCENTER.ORG 48

49 Thank you! Lucy Dadayan or With many thanks to my former colleague, Donald Boyd July 30, 2018 W WW.TAXPOLICYCENTER.ORG 49