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States Increase Budgets After Windfall

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States have increased their budgets after a one-time windfall drove tax revenues higher. Unfortunately, this one time revenue surge will likely become the new baseline and states will be forced to choose between sustaining their new levels of spending by increasing taxes next year and cutting spending. The better move for these states would have been funding a rainy day fund with the unexpected revenues. Stephen Moore explains the situation in The Wall Street Journal.

In total, state expenditures could rise by 5%-6% this year, according to an analysis by the investment research firm Strategas. That may not seem like a wild spree, but it’s running well ahead of the 2% inflation rate.

All of this is financed by an unexpected surge of tax revenues. State income-tax collections through April tax filing rose by 17% over last year, according to the Nelson A. Rockefeller Institute of Government (at the State University of New York, Albany).

But here’s the rub. In most non-oil states, revenues are up because tax-filers and companies cashed in one-half trillion dollars of capital gains, dividend and other income at the end of 2012—just ahead of President Barack Obama’s federal tax hike. This April’s increase in state revenues was in large part a one-time shot in the arm.

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E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.
E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.