Thanks in large part to 2017’s federal tax overhaul, state income tax collections soared in 2018. But the big unknown for lawmakers and budget directors this year is how much of that revenue bump can be relied on going forward.
Two forces resulted in unprecedented growth in income tax revenue, which swelled by 69 percent year-over-year in December 2017. The first was high-income earners and small businesses who held off on declaring what income they could from 2016 and 2017 in anticipation of an income tax cut last year. They got it, but it wasn’t as big as expected. The other force was taxpayers in high-tax states rushing to pre-file their 2018 taxes before the $10,000 cap on state and local tax deductions went into effect.
There’s evidence that some of that initial revenue bump will carry forward, as income tax revenues have continued to outpace expectations. During the first three months of 2018, for instance, income tax collections increased in 38 states, with 23 of them reporting double-digit growth, according to research by the Urban Institute’s Lucy Dadayan.