Report includes the first information on the effects of the 2013 tax law changes.
(Published Oct 14, 2013)
Minnesota Management and Budget (MMB) released the quarterly Economic Update on Oct. 10. The report provides the first look at the status of state general fund revenues since the 2013 Legislature enacted significant changes in Minnesota’s individual income, corporate income, sales, and tobacco taxes.
According to the report, forecasted revenues for the first quarter included approximately $240 million that was expected to result from the 2013 tax law changes. Actual state tax receipts during the quarter exceeded levels from a year ago by $336 million (9 percent), although not all of that increase is necessarily attributable to the tax base changes.
According to the report, net non-dedicated general fund revenues totaled $4.086 billion during the first quarter of fiscal year (FY) 2014, which was $2 million, or less than 0.1 percent below the forecasted collections. The income tax and the sales tax showed positive variances, with income tax exceeding projections by $27 million, or 1.3 percent, and sales tax receipts exceeding projections by $46 million, or 4.2 percent. The category of “other revenues” was $64 million, or 12.3 percent, lower than forecast, and corporate tax receipts were $11 million, or 3.1 percent, below estimated levels.
Cigarette and tobacco tax revenues fell $29 million, or 21.1 percent. Although the report does not offer a detailed explanation for the reduction, the tax on cigarettes was increased during the 2013 session, and the increase was expected to reduce tobacco product sales and consumption.
The Economic Update also provides a brief update on the state of the U.S. economy, including a discussion on the possible effects of the ongoing federal budget sequestration and the current federal government shutdown. The report states that the economy has continued to grow at a modest pace in 2013, despite the federal budget cuts known as sequestration and significant uncertainty created by the partial federal government shutdown. However, the report cautions that the federal government shutdown has already lasted longer than the single week assumed by the state’s economic forecasting form, Global Insight (GI).
In addition, GI continues to assume that Congress will raise the federal debt ceiling before the government’s borrowing authority ends on Oct. 17, 2013. However, if the debt ceiling is not raised, the federal government will be left with insufficient revenue to meet all of its obligations, causing some government payments to be delayed, partially fulfilled, or forgone. GI suggests that the impact of such an unprecedented event is unpredictable, although many observers believe it could significantly disrupt global financial markets.
MMB will provide a full budget forecast update in late November that will include a more accurate assessment of the effects of the federal government shutdown and the effects of reaching the federal debt limit should Congress not reach an agreement on raising the debt ceiling.
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