January 10, 2009
The sales tax slowdown

I note this in anticipation of Monday's revenue report from Comptroller Susan Combs.

The state collected $1.86 billion in sales taxes last month, a 2 percent increase from December 2007. The collections represent sales that took place in November.

While an increase, it's a smaller one than the state has been enjoying in recent years.

Sales tax collections increased 12 percent in 2006 from the previous year. The increase was 10.9 percent in 2007 and 6.6 percent in 2008.

The increase in collections for the first four months of the 2009 fiscal year, which began Sept. 1, was 3.9 percent, compared with the first four months of 2008.

Two things to keep in mind. One is that this trend is likely to continue and almost surely worsen, as retailers such as WalMart have reported below-target results lately. Retail is struggling, and that means sales tax revenues are hurting.

And two, even a slowdown in the growth of sales tax revenue, much less a decline, will have a big impact on the budget, if not in this biennium then then next one. As we know, the buydown of property taxes from $1.50 to $1.20 was paid for in large part by general revenue surplus; the larger buydown to $1.00, for which revenue was set aside in 2007, will rely on surplus funds even more (if it is to happen) given the underperformance of the business margins tax. Which leads to a question: What happens when the surplus runs out, or becomes inadequate, to fund this massive bit of government spending? Do we roll back, or at least not roll any farther forward, the property tax cuts, or do we go looking for another quarter million or so kids to throw off CHIP? Remember, the 2009 Lege is split 76-74 among the parties; in 2003, the last time we had to confront difficult budgetary choices, the Republicans had an 88-62 majority. That says to me that at least some kinds of spending cuts, like CHIP, are going to be a lot harder, if not impossible, to push through (and thank God for that). So what does happen? My guess is that the Lege closes its collective eyes and tries its best not to think about the next biennium, but maybe, just maybe, there's some momentum for pushing back on the scheduled cut from $1.20 to $1.00. Should make for some fun times on Appropriations, that's for sure.

Posted by Charles Kuffner on January 10, 2009 to Budget ballyhoo
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