May 20, 2013 Meeting Notice
DATE: Monday, May 20, 2013
TIME: 10:30 a.m.
PLACE: Room C-1, Stratton Office Building, Springfield
RE: Testimony on the shifting of State of Illinois retirees to a State-sponsored Medicare plan
April 2013 Monthly Briefing
REVENUE: APRIL SURPRISE – REVENUES SKYROCKET BUT ARE THEY ONE-TIME?
Jim Muschinske, Revenue Manager
Monthly income tax revenues leaped in April, growing by $1.521 billion. The infusion of cash into the State’s coffers allowed for the repayment of a voluminous amount of overdue Medicaid bills. That action subsequently generated a massive amount of federal sources over $1 billion during a single month. Adding to the monthly gain was an extra receipting day this April [which could have had the effect of pulling some of May receipts ahead into April].
For the month, gross personal income taxes grew $781 million, or $681 million net of refunds, and gross corporate income taxes gained $263 million, or $246 million net of refunds. While a component breakout [i.e. withholding, estimated, and final payments] of April’s Illinois income tax receipts will not be available from the Dept. of Revenue for several weeks, preliminary Commission assumptions are that gains are strongly related to final and estimated payments stemming from actions taken by taxpayers in efforts to minimize the tax consequences of the higher 2013 federal tax rates. As such, they are not repeatable in future fiscal years, and should be viewed more in terms of a “one-time” event. As will be discussed in a following section, Illinois’ employment situation is dominated by less than positive news, offering little in the way of argument for sustainable higher expectations.
Reports from other states also experiencing significant improvement peg the gains from income taxes on actions undertaken by higher income individuals as well as corporations to minimize the tax consequences of higher 2013 federal taxes. As most know, Illinois income taxes are largely based on adjusted gross figures from the federal tax return. While changes in the federal tax rates do not specifically translate to state taxes [as our own rates are applied to the taxable base], changes in taxpayer behavior do.
ECONOMY: RECURRING PATTERN?
Edward H. Boss, Jr., Chief Economist
Ever since the Vice President’s proclamation of a “Recovery Summer” at the beginning of summer 2010, sharp economic improvement has failed to develop. Moreover, forecasts from the Commission’s forecasting service, Global Insight, indicate a recovery in GDP from just 0.4% at the end of last year to a rate of 2.5% in the first quarter of 2013, but then slow again to 1.8% in the current quarter. A similar recurring pattern can be seen by reaction of investors in the equity markets during recent years.
The last recession officially ended in June 2009, so that the recovery is nearing its fourth birthday. While there is no commonality to the length of recoveries and expansions, most would agree the current one is not still in its early stages. One characteristic of recoveries that often is noticed, however, is that after a prolonged and deep recession, growth in the economy usually snaps back. The same, however, cannot be said of the current recovery which economists characterize either as the weakest in the post war period or the weakest ever.
Policy changes that have been tried include: federal “stimulus” and increased spending, causing the federal deficit to swell; additional regulations; several doses of quantitative easing by the Federal Reserve; tax increases to raise revenues; and government-directed spending to spark industry investment in such things as electric cars, new battery technology, solar panels and windmills to name a few. Even so, these actions have not provided either the spark to economic growth or the number of jobs expected.
It was cooperation of the federal government, Treasury, and Federal Reserve that played an important role in the form of the financial rescue plan in October 2008. Once accomplished, it is the private sector in the free market that is the basis of new job creation. It is hard to say what will spark this, it may be a sustained turnaround in the housing market or new technology that has increased domestic energy resources, reducing our dependence on imports, or clarification of impending regulation, but it will happen, hopefully in a positive direction.