The state has faced declining revenues this fiscal year from the income tax. But one revenue source has vastly exceeded projections: the estate tax.
The Shumlin Administration says if Vermont makes its revenue target this year, it will be mainly because a few very wealthy people died.
With 11 months of fiscal activity in the books, revenues for the personal income tax are running $17 million below projected targets. This represents roughly a 3 percent shortfall.
Administration Secretary Jeb Spaulding says income tax revenues took a big hit in April. That’s when state economists underestimated how many people would take advantage of capital gains tax benefits in 2012. This situation also occurred in many other states.
Spaulding says the revenue gains in April of 2013 resulted in losses in 2014.
“We knew a year ago April that we had by far and away the largest personal income tax month for collections in the state’s history,” Spaulding said. “And that had a lag effect that meant that the estimates for April 2014 did not materalize.”
While the personal income tax is underperforming, Vermont’s estate tax is unexpectedly running 80 percent higher than projections because of the death of several very wealthy people.
Spaulding says the gains in the estate tax are more than making up for the losses in the income tax.
“It’s not something that you want to rely on; it’s a very, very unpredictable revenue source,” said Spaulding. “But with the overestimates in the collections for personal income tax in April we’re very fortunate that the estate tax is also, in this case, the reverse: bringing in unprecedented receipts for the state.”
Spaulding notes that Vermont’s consumption taxes are doing pretty well and he thinks the overall outlook for the state economy is good.
“We also look at other economic indicators, everything from foreclosures to business starts, permits,” said Spaulding. “And when you look across the board there’s quite a bit of optimism out there and reason to think the economy is poised to continue going at a moderate pace.”
According to a new U.S. Labor Department report, lower unemployment statistics in a number of states don’t tell the complete story about how the state has recovered from the recession.
The report found that while many unemployed people have been able to find work, their wages are considerably less than in their previous job. Spaulding says that’s a major reason why the Shumlin Administration is focused on the creation of high tech jobs in the state.
“To make sure we actually try to be ahead of what seems to be a national trend of slow wage growth,” he said.
Spaulding says he hopes that the state will meet its revenue projections for the 2014 fiscal year so that it won’t be necessary to dip into Vermont’s budget contingency fund.