State income tax revenues for the crucial month of April were drastically off target, according to a release from the Shumlin Administration late Wednesday afternoon. But Administration Secretary Jeb Spaulding says an unexpected windfall in the estate tax will offset most of the financial harm.
Income tax revenue for April came in $19 million under projections, a 23-percent drop from what economists had predicted as recently as January. Spaulding says the fiscal setback would have forced significant mid-year budget adjustments, if not for estate tax revenues that came in at $19 million in April – nearly 13 times what economists had forecast.
“Fortunately we had a really unexpected positive counter balancing impact from the largest one-month receipts from the estate tax that we’ve ever had,” Spaulding says. “So that gives us someplace to go to counter balance what was not what we had hoped for in terms of April revenues.”
State law requires that any estate tax revenues above a certain percentage of projections be deposited into the Higher Education Trust Fund. The fund provides financial aid to Vermont students attending either the University of Vermont or Vermont state colleges. But Spaulding said the administration is in talks with lawmakers to suspend that provision, and redirect the funds in a way that offsets the poor income-tax performance.
Spaulding said the one-time estate tax windfall – it would have, under current law, resulted in an $8 million contribution to the Higher Ed Trust Fund – is an aberration that no one likely pondered when the provision was enacted. He said the state will still allow for a “significant infusion” into the fund.
Spaulding said the under-performance in income tax revenues is less a symptom of economic weakness than of changes to the federal capital gains tax laws. He said many filers likely accelerated capital gains last year, to avoid the higher federal rates this year. The result, according to Spaulding, was fewer capital gains being reported this year, and a decline in the tax revenue they would have generated. Spaulding says other states are seeing weak April income tax figures for the same reason.
