State tax collections in steep drop

Tax revenue dropped by 11% in 44 states in the third quarter according to the Rockefeller Institute.

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By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- State tax collections nationwide plummeted in the third quarter, and the forecast for the remainder of the year looks grim, a report released Monday shows.

Tax revenue in 44 states fell by about 11% in the third quarter, compared to last year, according to the Nelson A. Rockefeller Institute of Government.

State tax collections totaled $119.7 billion in the third quarter, compared to $134 billion from the same 44 states in the year-ago period, the institute said.

The western states were the hardest-hit region, showing a 15.3% decline, according to the institute, which studies state budgets.

California, with a revenue decline of 16%, was largely responsible for the western region's decrease.

Alabama's tax collections plunged 26.7%, which was the worst decline in the nation. Louisiana was the best performer for the third quarter, with a tax decline of less than 1%.

The six states for which comparable data were unavailable were Missouri, Nevada, New Mexico, Rhode Island, Texas and Wyoming .

Among the different sources of tax revenue, corporate income tax suffered the biggest decline, down 19.4% in the third quarter, the Rockefeller Institute said. Personal income tax fell 11.4% and sales tax collections dropped 8.2%.

The institute blamed the declines on the weak job market. The nationwide unemployment rate rose to 10.2% in October, a 26-year high.

Tax revenues will continue to be weak in the fourth quarter, the report found.

"Most economists believe that a stronger move toward recovery is still at least some months away," wrote the authors of the study, senior policy analyst Lucy Dadayan and senior fellow Donald J. Boyd.

"Thus, further revenue shortfalls and more spending cuts are most likely on the way for many states - particularly those that did not take significant actions to balance revenues and expenditures in their Fiscal Year 2010 budgets," they wrote.

A separate study from the Economic Policy Institute on Nov. 19 said that states, counties and cities will face a collective budget shortfall of $469 billion over the next two and a half years.

The EPI, a nonprofit think tank based in Washington, recommended that Congress provide another $150 billion in stimulus to state and local governments over the next year and a half to prevent the loss of 1.1 million to 1.4 million jobs. This would be in addition to the $144 billion already provided through the American Recovery and Reinvestment Act. To top of page

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