April Fools? Strong revenue growth may reflect one-time tax changes

April FoolsLast week’s announcement of April General Revenue (GR) collections seemed to signal great news for the state.  Revenues were up almost $90 million, or 14.7 percent, from the same month a year ago and exceeded the estimate by 15.1 percent. After lagging behind prior year collections for much of the year, April’s surge pulled total year-to-date GR collections ahead of last year by 0.9 percent. State Finance and Revenue Secretary Preston Doerflinger heralded April’s GR report as an indicator that, “The economy is  kicking in and revenues are right on pace… It instills confidence to have a steadfast economy like ours in times like this.”

April’s revenue growth was due almost entirely to a spike in income tax collections, which rose $70.6 million, or 19.8 percent compared to April 2012.  For the year, income tax collections are now $183.2 million, or 9.4 percent, above FY 2012.  But rather than reflecting real strength in the state economy,  April’s income tax collections may instead have been a temporary and one-time response by taxpayers to recent changes in federal tax policy.

In a report released in early May, the Nelson A. Rockefeller Institute of Government, which specializes in analysis of state finances, notes that states across the country are seeing a surge in April income tax collections.  The most likely reason is that some individuals accelerated the sale of stocks and other assets at the end of 2012 in anticipation of higher federal tax rates on capital gains in 2013. Less than one percent of taxpayers account for 86 percent of taxable capital gains, so the behavior of relatively few individuals can have a substantial impact on tax collections.  The Institute writes:

Taxpayers decide when to sell assets, taking into account personal circumstances,current tax rates,expected future tax rates, and other factors.Throughout 2012, taxpayers knew that federal income tax rates were scheduled to rise in 2013, and after Congressional action on the “fiscal cliff” those fears largely were realized: The top rate on ordinary income rose from 35 to 39.6 percent, and the top rate on capital gains rose from 15 to 20 percent. Taxpayers had an incentive to accelerate income from 2012 and later years, to lower their tax liability.

This income shift on capital gains would have the greatest impact on April 2013 tax collections as 2012 taxes came due. It may also have accounted for sharp rises in income tax revenues that Oklahoma saw in earlier months, especially October and January, from taxpayers increasing their withholdings for estimated taxes.  Revenue offices in states that have enjoyed strong April revenue bounces, including California, Connecticut, Illinois, Nebraska, Ohio,  and Wisconsin, have attributed the surge at least in part to accelerated capital gains. Oklahoma’s revenue report noted only that:

In addition to general growth, April’s income tax collection increase was also spurred by the Oklahoma Tax Commission reporting that it received several large payments from individuals who filed for extensions in 2012, driving collections up for the month.

The Rockefeller Institute draws pessimistic conclusions from their analysis of surging income tax collections. They argue that:

… the temporary surge in revenue may mask underlying weakness in the economy. Over the longer term, this could be bad news – it could mean that accelerated money received now, used to pay current bills, will not be there to pay for services in the future.

Oklahoma’s situation may be different, with the state enjoying among the lowest unemployment rates in the nation and personal income growth above the national average.  However, in terms of tax collections, personal and corporate income tax revenues have been the bright spots in an otherwise middling landscape.  Oil and gas collections have plummeted in FY 2013 by over 60 percent,  reflecting both low natural gas prices and the accelerating cost of credits for horizontal drilling. Sales tax collections have come in below the estimate three of the past four months. UCO Business School Dean Mickey Hepner, who tracks state revenue collections closely, argued last month that sluggish sales tax collections going back to last summer suggest “the state’s economy has stagnated.”

While the overall trend in state revenue collections remains unclear, drawing conclusions based too heavily on last month’s income tax collections risks turning us into April fools.    


Former Executive Director David Blatt joined OK Policy in 2008 and served as its Executive Director from 2010 to 2019. He previously served as Director of Public Policy for Community Action Project of Tulsa County and as a budget analyst for the Oklahoma State Senate. He has a Ph.D. in political science from Cornell University and a B.A. from the University of Alberta. David has been selected as Political Scientist of the Year by the Oklahoma Political Science Association, Local Social Justice Champion by the Dan Allen Center for Social Justice, and Public Citizen of the Year by the National Association of Social Workers.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.