The Rockefeller Institute released a report today, finding that sales tax data from the October-December quarter of 2008 indicates it was the worst decline in the last fifty years.
The report found that the fourth quarter of 2008 showed a decline of more than 4 percent and forty-one states reported sharp drops in tax revenue. Sales tax during this time went down 6.1 percent, compared to the same quarter of the previous year.
“While income growth has slowed, the big story so far is that consumption of goods — especially durables — has been declining,” said Donald J. Boyd, senior fellow at the Rockefeller Institute and study co-author. “This is a classic response of consumers to economic uncertainty and fears of lower income: eliminating, postponing, and scaling back purchases of items that are not necessary or not needed immediately, such as new cars, washing machines, and so on.”
Because of property taxes, the local tax slowdown has been less severe than the state tax decline. But growth has still slowed sharply for local governments and as more weight is leveraged against property tax, the more unstable they will become in the future.
The outlook for 2009 is no better. In fact, it’s worse. For the first months of this year, early figures show an overall decline of more than 12 percent.
“Preliminary data for the January-March quarter suggests that fiscal conditions deteriorated even further, and the second major tax source for states — the income tax — is likely to weaken dramatically in April,” Boyd said. “With data for January and February now available for 41 states, tax revenue for the two months combined has declined by 12.8 percent versus the same period last year.
To see the full report click here (pdf).
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