Add plunging state tax collections to a list of concerns that has recently grown to include a volatile stock market, rising interest rates, and increasing talk about when the next recession might hit.
Tax receipts for the month of December alone missed the monthly benchmark by more than half a billion dollars, erasing months of above-benchmark collections and leaving collections $108 million behind their targets midway through fiscal 2019, according to data released late Friday by the Massachusetts Department of Revenue.
Income tax estimated payments totaled just $121 million for December, $542 million or 81.7 percent below benchmark and $575 million or 82.6 percent below December 2017.
“We underestimated the shift of estimated payments from December into January. Early indications are that other states may be having a similar experience,” Revenue Commissioner Christopher Harding said in a statement.
Other key categories of receipts such as withholding, sales, and corporate taxes are flowing into state coffers near benchmarks, said Harding, and estimated payments, which are not due until Jan. 15, are “likely to be stronger in January as a result of the shift,” Harding predicted.
“In prior years, many taxpayers chose to pay in December, to take advantage of the federal deduction for state taxes,” Harding said. “The 2017 federal tax reform reduced this incentive to prepay, by placing a $10,000 limit on the deduction for state and local taxes.”
Suffolk University professor of economics David Tuerck said the December numbers, however disappointing, “should come as no surprise.”
“After a very strong recovery in FY 2018, revenue growth is headed downward, in line with historical averages,” he said.
Tuerck, the president of the Beacon Hill Institute, said he stands by the institute’s prediction that fiscal 2019 tax revenues will grow by 6.6 percent but also noted the institute’s projection that tax revenue growth in fiscal 2020 will slow to 2.4 percent.
“The December numbers are just an early indication of this downward trend,” he said.
Total December collections were $440 million or 14.6 percent less than collections in December 2017. Revenue collections of $13.3 billion over the first six months of fiscal 2019 are $108 million or nearly 1 percent below the year-to-date benchmark and $387 million and 3 percent greater than the same fiscal year-to-date period in 2017.
The original benchmark for fiscal year 2019 was $28.4 billion, but state officials on New Year’s Eve, just four days before reporting the huge drop in December receipts, raised it to $28.5 billion, citing “current year-to-date revenues and economic data” and backing off the books an estimate of $63 million in marijuana tax revenues.
The estimate that collections midway through fiscal 2019 are running $108 million behind benchmark is based on the original benchmark, an administration official said.
House minority leader Brad Jones said on Friday night that the December revenue drop “shows that more people are realizing there are reduced tax benefits to paying estimates by the end of December, as the federal deductibility has been limited under the 2017 tax law changes.”
“This absolutely demands close daily scrutiny moving forward,” said Jones. “It also means the mid-January numbers may take on a little more importance than usual, and the numbers for the month of January as a whole certainly will. This should also serve as a reminder that the Legislature needs to continue to exercise fiscal restraint and not use the recent trend of rising revenues as an excuse for excessive spending increases that could prove to be “
December is the fifth largest month of the year for tax collections and revenues for the month totaled $2.6 billion.
Fiscal 2018 tax collections of $27.8 billion surged 8.3 percent above fiscal 2017 collections, following several years in which collections tailed off during the final six months of the fiscal year.
Governor Charlie Baker, who has opposed broad-based tax hikes while eliminating budget deficits and building the state rainy day fund, plans to file his fiscal 2020 budget proposal this month. If natural growth in tax collections erodes, major investments in priority areas like education, health care and transportation will become more difficult.
State budget writers agreed Monday to build their fiscal year 2020 budget plans on the assumption that tax revenues will grow by 2.7 percent over the current fiscal year.