I continue to think about the tax situation in North Dakota right now, particularly trying to understand what the data are trying to tell us. Obviously I want to avoid a situation of torturing the data until they confess, but that should not stop us from slicing and dicing the data to find something meaningful.
The first thing I decided to discuss was prioritization. Which of the taxes reported in the Rev-e-news documents are the most important. This seems relatively straightforward. I just divided each tax entry by the total tax collections. (This is for the actual collections by the way. We will deal with forecasts in a later post.) I then averaged these shares over the total time period under study, July 2013 to January 2017.
It should not come as a surprise to anyone that sales tax averaged just over 50% of total tax revenues in this time frame. I was a little surprised by the shares of the individual income tax (16%) and the corporate income tax (6.2%). I thought they would have been a bit higher to be honest. There are many other smaller contributors overall but these were the big three to consider. Not really any surprises that these are the three to consider. Nor is it surprising that sales tax plays an outsized role. If you paid attention during the run up in tax revenue collections it was sales tax as a driving force. It was also sales tax that was among the biggest misses in prior forecasts of tax revenues at the state level.
The percent change from year ago levels of sales tax is really surprising.
Some of this is natural given that we are coming off what we now know to be a peak, at least a local one, in tax revenues and possibly the broader state economy. A time with the percentage changes less than zero could absolutely make sense and not be symptomatic of a larger problem. However, since May 2015 there has only been one month when the percentage change from a year ago was above zero. The way to read this graph is to not be terrible worried about the ups and down, but to notice how frequently we are below the zero value. This type of sustained time below zero represents the extent of the problem, particularly when you pair it with the fact that sales taxes are 50% of total tax revenue on average.
There may be a slight upward trend in the series since 2016, but it is volatile, and not likely to be a major reversal of the current state of affairs. In short, this data shows little sign of a major change in outlook for revenue going forward.
