State revenue surplus paints a pretty fiscal picture -- but with a catch

How’s the state economy doing? Pretty well, according to a variety of sources. The state just released its end-of-fiscal year revenue numbers, and Vermont’s general fund revenues exceeded expectations by nearly $60 million and came in about 7% above last year’s tally.

Most of that $60 million was due to better than expected revenues from the corporate and personal income taxes. Corporate income taxes are notoriously hard to predict, and most come from the fortunes of a handful of large businesses.

Healthy personal income tax revenues mean Vermonters’ incomes grew nicely, but that revenue growth is probably also due to the 2017 federal income tax changes that reduced the ability of high-income taxpayers to deduct state and local tax payments from their federal income taxes. That means they paid more in federal and state taxes than they otherwise would have. Good news in the short run, but it also gives high income taxpayers a good reason to move to states with lower property taxes and lower, or no, state income taxes. Like Florida or New Hampshire.

We don’t really know how much of the higher income tax revenues are due to the tax law changes or from higher income growth. At any rate, state personal income tax collections were up more than 5%. And the personal income tax raises nearly $900 million for the state, almost two-thirds of all general fund revenues.

Read more: https://vtdigger.org/2019/07/29/woolf-state-revenue-surplus-paints-a-pretty-fiscal-picture-but-with-a-catch/