The Department of Revenue last week released its May revenue report showing a monthly collection of $1.573 billion, which was $292 million better than a year ago but insufficient to make up for all of the revenue loss experienced in April due to the filing extension to May 11.
As a result, with one month left before the close of the fiscal year June 30, year-to-date (YTD) collections are $70 million below the benchmark. Keep in mind this benchark was revised upward in January from $18.279 billion to $18.460 billion, reflecting improved collections.
DOR Commissioner Navjeet K. Bal noted that personal income tax withholding and 2010 estimated payments, as well as sales and use tax and corporate collections, all of which are good indicators of a continued economic turnaround, were above benchmark. But shortfalls for the combined April/May period in payments with 2009 returns and extensions — probably reflecting a decline in capital gains due to past economic performance — caused the overall YTD below benchmark performance.
In other words, revenues reflect a generally improving current economy in terms of employment, wages, and consumer spending as measured through the sales tax, but there is still a lingering hangover from the economic shocks of the past 18 months in tax types and collections that reflect past economic activity. Taxpayers, for instance, may still be using capital gains losses to offset newer gains. And cash estimated payments are down $325 million from a year ago.
Economist Alan Clayton-Matthews of Northeastern University's School of Public Policy and Urban Affairs, notes in his most recent Massachusetts benchmarks reports for April issued on June 4 (not yet online at www.massbenchmarks.org) that the state's real gross domestic product will grow at an annualized rate of 5.6 percent in the second quarter and 5.1 percent of the third quarter of this year.
He refers to "wide-spread strength" in the state's economy in the first four months of 2010, and a stronger recovery seen to date than that which followed the 2001-2003 "dot.com" recession, and writes: "The recent robust growth and expected strength through the summer is good news for households and workers, yet it will take two or more years of such growth to restore unemployment to pre-recession levels. At 9.2 percent, the unemployment rate is still higher than at the peak of the state's 1989-91 recession."
If those numbers and trends continue, tax collections will continue to increase as projected in the coming fiscal year.
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