Revenues improving, but sales tax still a worry in soft economy

Sawin Millett
AP Photo/Robert F. Bukaty
Sawin Millett
Posted Sept. 25, 2011, at 4:48 p.m.
Last modified Sept. 26, 2011, at 1:53 a.m.

AUGUSTA, Maine — After a disappointing start to the budget year, revenues improved in August but remain under budget by $10 million. Finance Commissioner Sawin Millett says while that is good news, he remains concerned about sales taxes in a soft economy.

“Early information indicates that we will continue on target for September, but we won’t know for certain for a couple of weeks,” Millett said. “The sales tax area is one that bears a real close watching as we see the September numbers.”

He said the sales tax is divided into several categories and a key indicator of consumer spending, general merchandise, is running below what was collected a year ago. He said Mainers are not spending in the slow economic recovery.

“Early indications are we will not come in too far below estimates in September,” Millett said.

He said income taxes, both individual and corporate, was above projections in August and helped reduce the shortfall. He said so far in September, both appear to be on target or doing a little better than projected.

“It looks very good that we will get to our target for the quarter on income taxes,” Millet said.

Sen. Richard Rosen, R-Bucksport, is the co-chairman of the Appropriations Committee. He agreed with Millett that August revenues are good news, but that the soft economy is still very much a cause for concern.

“It is an improvement from where we were for the last couple of months,” he said. “The hope is that the revenue projections we use to build the budget come in on target.”

Rosen shares Millett’s concern that consumers are still not confident in the economy and are not spending as projected. He is a retailer and said he has seen little to indicate consumers are confident about their economic future.

“I think worry about the sales tax continues to be warranted,” he said. “We’ve looked overall at the back to school sales figures nationally and they were weak and I am now reading the projections for Christmas sales and it looks like they will be very soft.”

Rep. Emily Cain, D-Orono, the House Minority Leader and former co-chair of the panel, said it is good news that revenues improved in August, but she said the only certainty about the recession and its aftermath has been uncertainty in revenues.

“We saw some major swings in revenues over the last eighteen months,” she said. “I think we have to carefully watch all sources of revenue and look into the details of what is happening in the economy.”

Cain is worried that unemployment remains high and agrees with Millett that sales taxes, the second largest source of state revenue, are subject to economic concerns more than other taxes.

“I will be happy if revenues meet estimates,“she said. “But if they don’t, we will have to adjust as we have in the past.”

The largest tax source is the individual income tax, projected to bring in $1.445 billion this year. It was below estimates in July and above in August by $3.7 million, most of that in withholding.

Millett said he is also concerned with the taxes on tobacco products. Those taxes are the fourth largest source of state funds, projected to bring in $143.6 million this year. Revenues have fallen short for the first two months of the year and Millett believes it is in part the result of New Hampshire lowering its tobacco taxes as of July 1.

“We will have to watch this carefully and when the forecasting group meets it may have to be changed,” he said.

Fines, forfeitures and penalties continue to be the worst performing revenue line. It is supposed to bring in $28.4 million over the year, but is more than 18 percent below projections after two months. Millett said it also is affected by the economy.

“People cannot pay fines if they are not working,” he said, “we know that will be slow when the economy is slow.”

Millett said he is cautiously optimistic that when September ends, revenues will be very close to targets, possibly a little above.

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