Declining State Tax Collections


We all know that Maine state government is now facing an almost $200 million budget deficit. The primary culprit is declining tax collections. Some folks would have you believe that declining tax collections are happening everywhere. While other states may be seeing a slow-down in collections, Maine’s problem is much deeper.
Last week, the U.S. Census Bureau released its 2007 state tax collections data. Between FY 2006 and FY 2007, only three states saw an absolute decline in tax collections: Maine (-$16,899,000), Florida (-$1,463,277,000) and Wyoming (-$97,149,000). Florida repealed their intangibles tax which explains their drop. Wyoming saw a decline in their highly volatile severance taxes which explains their drop. What explains Maine’s drop in tax collections?
More disturbingly, the drop is not concentrated in any single tax: Individual Income Tax (-$10,626,000); Corporate income tax (-$4,161,000); Death and Gift (-$20,510,000); Documentary and Stock Transfer (-$5,095,000); Occupation and Business Licenses (-$869,000); Amusements Licenses (-$96,000); Other Selective Sales Taxes (-$3,813,000); Pari-mutuels (-$247,000); Insurance Premiums (-$8,889,000) and Property (-$3,949,000).
Overall, this broad-based decline in tax collections suggests a broad-based decline in economic activity. This further suggests that the current budget deficit should be closed by reductions in spending, not by tax increases.