PORTLAND — A better outlook for corporate profits and the expected transfer of major estates through the next year make up the bulk of why state tax forecasters think Maine government will collect $45.5 million more than expected through the middle of next year.
A combined upward revision for corporate income tax and estate tax payments of about $24 million accounts for more than half of the forecasted increase, which the state’s revenue forecasting committee attributed to growth in pre-tax corporate profit estimates and “a number of moderately large estates” pushing inheritance tax collections 60 percent higher than expected for the state’s current fiscal year, which closes June 30.
The forecast shows four of the state’s 14 revenue categories are expected to decline slightly from earlier projections.
The immediate impact for state government is that a new Legislature won’t have to make mid-course adjustments and will likely have extra cash on hand to support either tax cuts or existing or new programs.
And while a revision of $45 million may sound like a lot, it’s about 1.5 percent of the state’s total $3.1 billion in tax revenue expected this year.
“Once again, the Revenue Forecasting Committee’s adjustments to its previous forecast have been relatively small, reflecting the slow but steady growth of Maine’s recovery from the Great Recession,” the forecasting committee wrote in its December forecast.
The forecast that extends to the state’s 2019 fiscal year reflects an expectation that the state’s economy will fare well through 2015, with year-end revenue rising 5.8 percent higher than 2014.
After the end of 2015, when a temporary increase in the sales tax will expire, state tax revenue is projected to fall about 3.1 percent before growing again by 4 percent in 2017 and another 3.3 percent 2018.
By 2019, forecasters project the state will take in about $3.5 billion to the general fund, which is 15 percent more revenue than projected for the end of this year.
While projecting steady growth for the coming years, forecasters raised concern that the state’s largest tax revenue source — income tax — could be hindered by the state’s stagnant population growth.
“The aging population and lack of population growth will limit employment growth and income growth going forward,” the report stated.
The committee raised its projections for individual income tax this year but lowered them for 2015 to 2017.
The forecast projects the state will be back to pre-recession employment levels by 2017, with wages growing faster from 2015 to 2017. For this year, the state dropped estimates for wage growth, an area that hits both income tax revenue and it’s second-highest source of revenue: sales tax.
Trends in that category reflect the broader economy, as sales at retail stores give some indication of how much people have and are willing to spend.
Through the recession started in late 2007, taxable retail sales began to decline, picking back up in 2010. For the third quarter of this year calendar year — July to September — the state recorded the highest amount of sales for the last eight years.
That tally does not account for inflation and reflects total sales, rather than the portion the state took as tax income.
But within the state’s sales tax receipts, it’s clear that certain areas of Maine’s economy have fared better than others after the recession.
For instance, restaurant and lodging sales have grown the most since 2007, along with food stores, car and car-related sales. That’s as building supply sales continued to lag behind 2007 totals in the first three quarters of this year, with sales tax paid for business purchases lagged 2007 figures in the first and third quarters of the year.
The general merchandise category — for department stores and big retailers — has also trailed the growth in other retail sectors since the recession.
Mike Allen, associate commissioner for tax policy at Maine Revenue Services, said in a recent interview that slow growth in that category reflects the impact of the recession on low- and middle-income households in the state.