Money News is reporting on an ominous trend for state budgets: U.S. Sees First Sales Tax Revenue Drop in 6 Years

U.S. consumers are cutting back on spending, driving the first nation-wide decline in sales tax revenues in six years, according to a report released Thursday.

From January to March, sales tax revenue fell in 21 states from the same quarter last year, according to the Nelson A. Rockefeller Institute of Government. “The sales tax declines suggest that consumption, retail sales and the income needed to support spending are slowing considerably,” the report said. The institute researches state and local governments for the State University of New York.

Sales tax revenue dropped 0.1 percent for the nation as a whole, according to the report, the first decline since the first quarter of 2002.

Most states have laws requiring them to balance their budgets this year, and drops in major revenue sources could force them to cut programs and other spending.

According to the National Conference of State Legislatures, sales taxes provided a third of state tax collections in 2004, with individual income taxes making up nearly another third.

Since the housing market bubble burst and the credit crisis gripped the country, many states have cut spending. For fiscal year 2009, 23 states and Puerto Rico are projecting budget shortfalls, according to the conference.

No Good Solution For States

It’s really too bad the U.S. government is not on the same budget constraints. The insanity in Iraq would have ended long ago. If the debate in Iraq was raise taxes or walk away, only Neocon Neanderthals would vote to raise taxes.

States, on the other hand have two choices: raise taxes or reduce spending. Either way it is going to slow consumption and drive more people into bankruptcy. One more thing to point out: Sales tax revenue is declining even though the price of goods and services, especially food and energy, has been rising.

Sales taxes prove consumers are strapped. The growing Pawnshop Society offers still more evidence of a massive attitude change on behalf of consumers. Furthermore, rising unemployment is going to force a change in attitude on those who have not yet embraced the It’s Cool to Be Frugal message.

Mike “Mish” Shedlock
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