/CARES Act cited as a factor in soaring revenue collections early in fiscal year

CARES Act cited as a factor in soaring revenue collections early in fiscal year

Recently released by the Legislative Budget Committee staff, the August revenue report details an unprecedented increase in state tax collections. Some believe this was due to federal stimulus funds. Strong revenue collections could be a factor in the Legislative Budget Committee meeting later this month to start the long process of creating a budget for the new fiscal. This will begin July 1. Economists and state leaders feared that there would be a $1.2billion drop in tax revenue due to the COVID-19 epidemic. This would cause major cuts to state services and result in the loss of many state jobs. However, such cuts are unlikely to occur unless there is a significant downturn in the next months. Gov. Tate Reeves boasted of what he calls an improving state economy. He cited a report that placed Mississippi seventh in the country in terms of regaining the jobs lost in March, April and April when the nation and state were shut down by the pandemic. He stated that while we’re not happy with our economic results, we are doing better than many other states in August. Revenue collections from the first two months in fiscal year indicate unprecedented economic growth. State revenue collections are generally considered indicators of economic strength. These include sales tax, corporate income tax, and in a smaller amount, other sources. However, there are other factors that could be contributing to this large increase in tax collection. State leaders decided to extend the deadline for individuals to pay their tax liabilities from April 15th to July 15. This resulted in income taxes that were normally paid to the state during the previous fiscal year being collected in this fiscal year. The result was that July’s personal income tax collections increased by $119.5million or 94.2 percent. The delay in filing and paying tax returns has no doubt affected revenue collections for the current fiscal year. Even more important, Sen. Hob Bryan, a Democratic senator from Alabama, stated that Mississippians received income earlier in the year through the federal Coronavirus Aid, Relief, and Economic Security Act. The federal program, which totaled $2 trillion, provided the majority of adults in the country with a $1,200 payment, or a maximum $3,400 for families of four who earned less than $198,000. Bryan stated that federal payments have a greater impact in a state with low income because people of lower income are more likely to spend these payments quickly to meet their needs. Bryan stated that Bryan believes there is no doubt that money dropped in Mississippi’s economy will be spent and have an effect. The CARES Act provided $600 per week in additional unemployment benefits to people who had lost their jobs (around 200,000 Mississippians according to state data). Some state political leaders complained that many Mississippians who lost jobs due to the federal supplement were unable to return to work as they were earning less. Darrin Webb, then-state economist, responded to legislators complaining about people not returning their jobs due to the increased unemployment benefits. He said that while they did want to work, they also respond to the market forces. The CARES Act’s enhanced unemployment benefits ended on July 31. However, Reeves decided to accept $300 per week for many Mississippians who are currently unemployed, thanks to an executive order signed by President Donald Trump. Bryan stated that the problem isn’t that people are not working for more unemployment benefits, but because the wages in Mississippi were so low that they would choose to not work. According to Bryan, the solution to Mississippi’s economic woes is not to reduce the unemployment rate but to increase the average wage of its workers. In the weeks ahead, legislative leaders will begin to work on a budget for the upcoming fiscal. They will be trying to determine whether or not the growth in tax collection will continue as the CARES Act’s impact fades.