Tax Reform Uncertainty to Hurt State Revenue Growth in FY ’18

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Ryan Prete

The uncertainty over federal tax reform and increasing costs of healthcare and Medicaid threaten to dampen states’ slow tax revenue growth for fiscal year 2018, according to preliminary findings from the National Conference of State Legislatures.

Arturo Pérez, NCSL’s fiscal affairs program director, said during the NCSL’s Legsislative Summit in Boston that “the fiscal situation for states is generally stable, not much has changed from a year ago, revenue growth continues to remain steady, but slow.” However, states face challenges as they prepare for the potential flow-through impact of federal tax reform and already escalating prices associated with the healthcare system.

Pérez said Aug. 6 that the preliminary numbers are based on 37 states, and he expects the NCSL will have final projections for all 50 states in the coming weeks.

General revenue growth among states grew by an average of 1.5 percent during fiscal year 2017, Pérez said. The NCSL predicts this figure will increase to 3.9 percent for FY 2018.

Preliminary data on specific state tax revenue growth for FY 2018 includes:

  •  a 4.3 percent increase in personal income tax revenue;
  •  a 2.3 percent increase in sales and use tax revenue; and
  •  a 4.4 percent increase in corporate income tax revenue.
“Overall, we can say that revenues have been growing at a lackluster rate,” Pérez said.

‘Huge Question Mark’

Max Behlke, director of budget and tax at NCSL, said he has doubts that federal tax reform will materialize soon.

“I do believe that Republicans in Washington want a win and that tax reform is something they could probably get behind, but we just don’t know what it’s going to look like,” Behlke said. “How are they going to pay for it? Well, the state and local tax deduction is definitely on the chopping block. It’s $1.3 trillion over a decade that would go to offset cuts somewhere else.”

Behlke expects several items will dominate the congressional agenda after the August recess, further pushing back deliberations over tax reform, including passing an appropriations bill and raising the debt ceiling.

“Because of all the procedural hurdles, I don’t see tax reform actually taking place. This is all a huge question mark,” he said.

To contact the reporter on this story: Ryan Prete in Boston at rprete@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

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