The president changed the tax code and encouraged stock market growth.
Both developments increased the flow to state tax coffers, although the biggest beneficiaries – Illinois, California, and New York – probably won’t send him a thank you card anytime soon.
April might have brought spring showers, but many states could be mistaken for thinking it was raining money. After some leaner tax receipts at the end of the year, the federal tax changes, which inform state income taxes, coupled with recent stock market gains became the gift that keeps giving.
Looking a gift horse in the mouth, some analysts have cautioned that the jump in revenue shows the volatility of tax receipts, so recent increases shouldn’t be built into budget projections.
Lucy Dadayan, a senior research associate who tracks state revenue at the Urban Institute, said:
“Moving forward, states should be cautious about income tax revenue and shouldn’t be expecting the strong growth they’ve seen in April.”
That might be hard for states like California, where April tax receipts jumped 35.2% over the same month last year.
It is not yet clear how much of a role wages, capital gains, or other factors played in spurring the higher income tax collections – and whether that level of revenue would be ongoing.
Some states have challenged the federal government on the limits it set on state and local tax (SALT) deductions. If those challenges succeed, these jurisdictions could be trimming their own state tax receipts.
For states with little or no income tax, things didn’t change much.
Seven states – Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming – collect no income tax, and two – New Hampshire and Tennessee – tax dividend and interest income, but not wages.