The latest quarterly revenue report by the General Assembly’s Fiscal Research Division (FRD) highlights that tax cuts do not explain the better-than-projected income tax revenue collections for the most recent fiscal year 2015.
According to FRD, two factors likely affected income tax collections for the most recent fiscal year.
- Corporate taxable profits accelerated as wages remained low and write-offs on losses from the recession dwindled. This pushed collections 21.2% above forecast expectations.
- Timing in personal income tax collections from changes enacted beginning with the 2014 tax year meant lower monthly withholding revenue – but higher final payments and smaller refunds in April. The forecast didn’t fully capture those dynamics leading to a shortfall the previous fiscal year and a surplus in FY 2014-15.
There’s evidence to support these two points. Corporate profits are at a record high as the economy recovers in part due to a steady increase in productivity. Meanwhile, wages for workers have remained stagnant – an indication that workers have not participated in the economic gains during the ongoing recovery. Furthermore, FRD notes that tax changes in recent years made it difficult to determine the timing of income tax revenue collections, resulting in a projection that was well below actual collections for FY 2014-15. Read More