Measuring the Economy by Taxation

Tax collections are up, in Rhode Island, and not a few people are happy to offer tentative suggestions that it’s a positive sign for the local economy. I hope so. But still, I think it’s tricky stuff to use this measurement. Consider two notes that Neil Downing offers on the data:

* The amount of state income tax withheld from workers’ pay totaled about $145.5 million, up 9.1 percent from the same two-month period a year ago. In general, this suggests that more people are working, workers are earning more, or both, Dion said.
Sales-and-use tax revenue rose 3.5 percent, to $152 million. The category includes revenue receipts at the Registry of Motor Vehicles, which increased 6.8 percent, to $14.8 million. Overall, “there seems to be some pickup in consumer spending,” Dion said.

Comparing this year’s report with last year’s iteration, the difference in total tax collections is $36 million. One-third of that ($12.1 million) comes from the increase in withholdings. This year’s rate is even higher than that in FY09 (or actual year 2008), when it was $139 million. (The report for the year before is not online.)
So is our job market now better than it was two years ago, when the unemployment rate was 8.1%? According to the Bureau of Labor Statistics, 505,495 Rhode Islanders were employed as of July 2010; the number in July 2009 was 501,957; in July 2008, it was 525,562. Why is an employed population that is 4% smaller withholding an amount of taxes that is 4.5% greater? If you want me to offer a comprehensive answer to that question, you’ll have to finance Anchor Rising as my full-time job, but I’d be willing to speculate that it might have something to do with changes to tax laws that reduce itemized deductions and shift the tax burden around.
Another million dollars in increased “tax” collections derives from the Registry of Motor Vehicles. And again, the amount is well above the number two years ago. Is that a sign of new car purchases? Perhaps. Or maybe it’s a sign of creeping fees.
Another $2.7 million in increased collections derives from Historic Structure Tax Credit Reimbursements that weren’t given this year. $2.3 million comes from fewer refunds/adjustments this year. Business received $4.6 million less in refunds and adjustments..
About the only increase that doesn’t have an immediately apparent dark lining is net sales and use taxation, which rose about $3.9 million. That’s a 3% increase from the year before, although it’s still $2.6 million less than the year before that.
If that’s what we’re looking toward for hope of a recovery, we must really be getting desperate. But the larger point is that taxation isn’t a reliable advance-notice measure of economic improvement.

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