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The January report is always eagerly anticipated because it is the first glimpse at tax collections during the previous holiday shopping season. This year, interest in the report was heightened by the uncertainty surrounding the Congressional fiscal cliff and its potential impact on the state’s economy and general fund budget.
(Published Jan 11, 2013)
On Thursday, the Minnesota Department of Management and Budget released the quarterly report on Minnesota tax collections. According to the report, Minnesota’s net general fund receipts totaled $3.066 billion in November and December, $114 million (3.9 percent) more than forecast. The bulk of the revenue increase was due to corporate income tax receipt increases, which were $93 million more than forecast. Net individual income tax receipts also exceeded forecast by $53 million or 4.0 percent.
In contrast, recent sales tax receipts were less than projected with net receipts falling $40 million, or 5.1 percent below forecasted levels. However, the report only covers a brief portion of the holiday shopping season due to the fact that sales taxes are remitted by retailers in the month after collection. In other words, December sales tax collections are based on taxable retail sales that occurred in November.
The January Economic Update suggests that some of the increase in tax collections may not indicate a stronger-than-expected economy. For example, due to the uncertainty surrounding the federal fiscal cliff, some taxpayers may have accelerated income into 2012 to avoid the uncertainty of possible tax increases to resolve the fiscal cliff. If those transactions were indeed accelerated, the state might expect some slowing in revenues beginning with January tax collections. The next full state budget forecast will be released around March 1. However, this forecast might be impacted by the delay in Congressional action on federal spending reductions (sequestration) and the possibility that the nation could hit the absolute debt limit before Congress and the President reach an agreement. According to the MMB January Economic Update, most economists believe that hitting the debt ceiling would damage the economy more than falling off the fiscal cliff.
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