Rebel Traders – Analysis Without The Hype

The economy is doing so good now that some states can’t afford to pay tax refund checks. Yes, that was intended sarcasm.

Residents eager to get their state tax refunds may have a long wait this year: The recession has tied up cash and caused officials in half a dozen states to consider freezing refunds, in one case for as long as five months.

[…] "It’s an indicator of how bad it is," says Scott Pattison, executive director of the National Association of State Budget Officers. "You know things are bad when you have to do that."

New York, hit with a $9 billion deficit, may delay $500 million in refunds to keep the state from running out of cash, says Gov. David Paterson. […]

Hawaii’s Department of Taxation says some residents may not see state income tax refunds until the end of August, The Honolulu Advertiser reported. It was part of a plan by Gov. Linda Lingle to deal with a revenue drop-off by pushing costs into the next fiscal period, which begins in July. […]

[…]The delays come as some states continue to face deep budget holes, even as economists say the nation as a whole has begun recovery. In a recent report, the budget officers group and the National Governors Association said state fiscal conditions "have continued to worsen," and that state revenues can be expected to lag one to three years behind a national recovery from recession.

This fiscal year, the report said, 36 states have cut nearly $56 billion in spending, and 30 states have cut funding to public and higher education. (USAToday)

State and local budgets are suffering greatly.

Taxes go up in 33 states in response to declining tax revenues.

The tally for 2009 is in and it is historic. State tax revenues declines by $87 Billion, the steepest decline on record. This decline is attributed to lost jobs, reduced wages, and lower economic activity.

As tax revenues decline some states have responded by eliminating tax exemptions, increasing fees, and broadening tax bases.

Who said that the middle class would not see their taxes increase before the election?

The full report from the Center on Budget and Policy can be read below.

State Tax Changes

From the Providence Journal:

State tax officials have put more than 1,200 businesses across the state on notice this week that they are out of business unless they pay their overdue sales taxes immediately.

For most, that action came in the form of a personal visit from the state Division of Taxation, ordering business owners to lock their doors at once.

By Wednesday, a line of people had queued up inside the Department of Administration building on Smith Hill, waiting their turn to plead their case to a state revenue agent. Some were angry. Others frustrated.

“I understand the state needs money, but to put pressure on the small guy or the moderate guy that’s struggling, it’s not going to do any good,” said Mike Suriani, who owns an electrical supply company in South Providence.

[...] “Yes, the rules state that we have a responsibility to pay our bills every quarter. But when your customers come in and they don’t pay you for a month, and then another month, and another month, businesses have no choice [in] the eyes of the state but to close up and get out,” Suriani said.

State officials say they’ve given businesses with sales-tax permits plenty of notice that they’ve fallen behind in making tax payments.

The permits expired on June 30, and the last in a series of letters sent to owners in recent months said they would not be issued new permits without straightening out their tax situation. In the interim, they were told: “You are conducting business without a permit and must cease immediately.”

A handful in line Wednesday said the process wasn’t quite that simple. Desmond Clark, who owns a small video-game store in North Providence, said he spent months trying to negotiate a payment plan with the state that would allow him to keep current on owed taxes, while staying afloat in a tough economy.

“They didn’t want to hear it. They didn’t want any payment plan whatsoever,” said Clark.[...]

[...] The officials would not disclose who received the in-person visits this week, but said they reached every conceivable kind of retail business in Rhode Island, including small mom-and-pop stores, restaurants and bars. [...]

The next stage of the recession is now taking hold with tax revenues being hit hard at the state level (and local levels). As tax revenues decline then the state governments (and local governments) are forced with either hiking taxes to make up the loss, or they cut services and employees.

A vicious cycle recessions can be…

State income-tax revenue fell 26% in the first four months of 2009 compared to the same period last year, according to a survey of states by the nonprofit Nelson A. Rockefeller Institute of Government.

The report, conducted by the public-policy research arm of the State University of New York, is one of the most up-to-date measures of how deep the recession is digging into Americans’ wallets and, consequently, state coffers.

States are required by law to balance the budget, so lower tax revenues will translate in service cuts, rather than red ink. Already states such as Kansas are slowing the payment of income-tax refunds and delaying payments to local school districts, according to the report.

Withholdings from the first four months of 2009 were down 6.9% from the same period in 2008, signaling that “many people had a very bad start of the year” with lower salaries and wages, says Don Boyd, a senior fellow at the Rockefeller Institute.

The time span notably includes the April 15 deadline for filing taxes, a critical time for states to collect revenues.[...]

The plunge in income-tax revenue means some states may have to revise budget agreements for 2009-2010 and may still face gaping holes in 2011, when federal stimulus money runs out. (source: WSJ)