Personal Income Tax Revenues Show Significant Softening in Q4 2013, Decline in Q1 2014

For two consecutive quarters, state income tax revenues have disappointed. And in the first quarter of 2014, state income tax revenue actually declined.

The Nelson A. Rockefeller Institute reports Personal Income Tax Revenues Show Significant Softening in the Fourth Quarter of 2013.

Total state tax collections have grown in each quarter of the last four years. However, growth softened significantly in the third and fourth quarters of 2013. Early figures for the first quarter of 2014 indicate even further softening in state tax collections, and possible declines in personal income tax collections.

Officials in many states have been facing extraordinary challenges in forecasting income taxes due to uncertainties related to capital gains, which can have a large impact on estimated taxes paid in December and January, and on payments with tax returns filed in April. The uncertainty has been heightened this year due to the strong performance of the stock market in 2013 and the un- intended consequences of the fiscal cliff. Calendar year 2013 ended up being a remarkable year for the stock market, gaining 19 percent as measured by the S&P 500 Index, creating a favorable environment for capital gains. On the other hand, for reasons discussed within, many taxpayers appear to have accelerated income from calendar year 2013 to calendar year 2012 to avoid higher federal tax rates, likely creating a “trough” in capital gains in 2013. This creates great uncertainty for states: Was the stock market strong enough to more than offset the “trough” effect related to the fiscal cliff, so that capital gains would be strong in 2013, or would the latter effect dominate, resulting in a large decline in capital gains?

First Quarter Income Tax Declines

In a followup report, the institute reports State Income Taxes Showed Declines in the First Quarter of 2014.

The Rockefeller Institute's compilation of preliminary data from 46 states shows that collections from major tax sources increased by an insignificant 0.7 percent in nominal terms in the first quarter of 2014 compared to the same quarter of 2013. This is the weakest growth since the first quarter of 2010. Among 46 early reporting states, 37 states reported gains while nine states reported declines in total tax revenue collections. Personal income tax collections declined in nominal terms by 0.4 percent. This is the first time since the first quarter of 2010 that states reported declines in income tax collections. The growth in sales tax collections was also weak at 1.0 percent, while corporate income tax growth was at 5.6 percent.

While the declines in income tax collections are not surprising, the softening in sales tax collection s is less expected and more worrisome. Among 41 early reporting states, sales tax collections showed declines in 11 states, with Arizona and California reporting the largest declines at 16.7 and 9.9 percent, respectively. The large declines in Arizona are mostly attributable to the expiration of a temporary one-cent tax increase for fiscal years 2011-2013. For the nation as a whole, the unusually cold winter may have temporarily depressed shopping, contributing to the sales tax slowdown.

State tax revenues have been recovering continuously for four straight years. However, the state revenue recovery has been much slower and more prolonged than in previous recoveries. State tax revenues were particularly strong in the first half of calendar year 2013, and particularly weak in the second half of calendar year 2013 and in the first quarter of 2014. This volatility probably is attributable more to taxpayer responses to planned and adopted federal policy changes and to legislated tax changes in many states than to underlying economic factors.

The declines in income tax revenue in the first quarter of 2014 likely reflect lower payments on the 2013 tax year of estimated taxes due in January. We expect that income tax collections will show further declines in the second quarter of 2014, when 2013 income tax returns due on April 15th are filed. However, it is hard to know how surprising the April surprises will be, as the tax year 2013 was also a very good year in the stock market. Once the figures for the month of April are available, we will have a clearer picture of the interplay between the strong stock market and the fiscal cliff, and their relative impact on the income tax collections.

State Tax Revenues 2008-2014



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Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Ukraine Opens Talks with Russia; New President Promises Peace Making Efforts; Bombing of Slavyansk Continues Anyway

The Financial Times reports Poroshenko opens talks with Russia.

Petro Poroshenko, Ukraine’s new president, has opened talks with Russia on restoring peace in two breakaway eastern provinces a day after taking office, vowing to negotiate an end to the three-month-old pro-Russian insurgency.

Mr Poroshenko took part on Sunday in a three-member “working group discussion” on a proposed peace plan with Mikhail Zurabov, Russia’s ambassador to Ukraine, and a representative of the Organisation for Security and Co-operation in Europe, Iryna Friz, a spokeswoman for the Ukrainian president said.

The opening of dialogue came a day after the billionaire oligarch took office with a promise to “ensure lasting peace” in the country’s breakaway eastern Donetsk and Lugansk provinces, and on the same day that Ukraine’s military pummeled rebel positions in a heavy assault on the separatist-controlled city of Slavyansk.

Pro-Russian rebels, who fired back with machine guns and heavy artillery, said that an unspecified number of civilians in the city were injured or killed. Explosions were heard, some buildings caught fire, and columns of thick black smoke rose over the town on Sunday afternoon.

In his first speech as president on Saturday, the billionaire oligarch sounded a more emollient tone on making peace with the rebels than the uncompromising line favoured by his caretaker predecessors, who took power after February’s pro-Europe Maidan revolt.

Mr Poroshenko promised to allow easterners free use of the Russian language and move forward with a plan to decentralise government – core separatist demands – and the holding of new local elections in the east.

Peace Making

Peace making talk is off to a rather disingenuous start to put things mildly. Please consider Battles under way near Ukraine's Slavyansk and Kramatorsk.

Shooting resumed Sunday morning in the area of Slavyansk and Kramatorsk, the headquarters of Slavyansk self-defense forces told RIA Novosti. "Battles are now under way on the outskirts of Kramatorsk, in the area of the Yasnogorovsky state farm, as well as on the outskirts of Slavyansk, near the Mashmet," the militia informed.

The Ukrainian army continues to bombard Slavyansk (the centre and the districts of Artem and Vostochny), and its suburbs - Yampil and Semyenovka. The security forces use mortars and self-propelled launchers Tulip.

Images of Slavyansk

Reader Dmitriy provided a link these Images of Slavyansk.







More images in link.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Looking to Drastically Reduce College Costs? Study Abroad!

Why go $40,000 to $100,000 or more in debt for a college education when studying in Europe will cost far less, possibly even be free, and you will pick up a foreign language or two in the process?

Please consider a response from reader Ivo in response to Co-Signing a Loan is Risky Business For You, Your Family, Your Heirs, Even the Borrower: More Student Loan Debt Slave Nightmares.

Ivo writes..

Hello Mish

Your points are generally correct, but at the same time, more and more students choose to study abroad. Why not get your degree from another country?

Also, I have co-signed a couple of student loans in Estonia, and feel pretty good about the loans as well as the people, especially in comparison to what's going on in the US.

My oldest son is studying film-making in one of Europe's newest and most modern film schools, located right here in Tallinn, for 3,400 EUR total per year. By the end of his BA, he'll be some 10,000 EUR in debt (I am paying some of his expenses), but has studied under internationally-known film-makers, has participated in several international film festivals with his own films, and has trained on cutting-edge equipment. Before he enrolled last fall, we did some research about his different options in different countries. In the USA, a similar program would have cost him $200,000 or more, tuition only.

So why should one study in the USA at all?

Apparently one of the reasons are regional licenses. You may not be able to get a job in California if your future profession requires a CA license, which you will automatically get from an expensive CA-based university (and which costs you and your family a life-long debt slavery). For example, California may not want to have anything to do with you if your degree is from Helsinki, Finland, even though you may have had many of the same teachers on a guest-tutor basis as you would have had in CA.

I think for many study areas, the regional licensing systems are one of the most important factors driving people into life-long debt servitude in the USA as people may be unable to get jobs if their degrees are from schools in different states or countries.

This definitely warrants some further research.

All the best,

Ivo

Advanced degrees in medical and dentistry in Europe may not be cheap, but they still are far cheaper than in the US as noted by the New York Times article Medical Students Head to Eastern Europe.

Regardless, if you cannot afford the cost of a US education, or even if you can, please research all your options instead of becoming another US debt slave statistic.

Any educators care to chime in on regional or foreign accreditation?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Unvarnished Ukraine Update; Steen Jakobsen on Impact of Ukraine on Germany

I have a several reader emails on Ukraine today, including one from Steen Jakobsen, chief economist of Saxo Bank on the impact of Ukraine on Germany.

Impact of Ukraine on Germany

A couple days ago, Steen pinged me with a few comments on Ukraine worthy of your consideration. Steen writes ...

The Ukraine crisis will go on for much longer than anyone wants, everyone will lose and world growth will disappoint again, but the real issue behind the scenes is Europe’s lack of a coherent energy policy. The present green energy policy is a mess. Green energy is inefficient, tax burdening and nowhere near close to meeting rising energy demand from Europe.

Europe is energy deficient. EU dependency on imports is increasing for all fossil fuels. Oil imports reached 83.5 per cent in 2009 and 64.2 per cent for gas, according to the EU Commission.

The biggest loser will be Germany. There are more than 6,200 German companies engaged in business with Russia. The Economist states that 300,000 German jobs are at risk, German business investment into Russia exceeds €30bn, excluding financing from German banks, but more importantly Germany imports 70 per cent of its energy of which 25 per cent comes from Russia.

Angela Merkel and her government have been caught out by a failed energy policy, which has made electricity a luxury good for many German households. But even worse, she decided that she would rather be dependent on Mr Putin than on nuclear power.

The biggest consequence of the Ukraine conflict could be a revisiting of the 1970s energy crisis, including energy rationing. After close to 30 years of doing this job I am realizing that energy is everything in explaining growth, investment, sentiment and market returns.

Understand energy and its marginal price of production and its delivery and you have the keys to predicting the world. Sadly Europe and the US is stuck in using Sir David Frost’s definition of diplomacy: “Diplomacy is the art of letting somebody else have your way.”

Unvarnished Ukraine Update

Reader David writes ...

Good Morning Mish

I just returned from a two-week tourist trip to Turkey, four days in Istanbul, and nine days along the Mediterranean coast.

The hotel/resort where I stayed on the coast was a favorite for Russian tourists, and the hotel TV had several stations delivering Russian channels, German and French stations too. Russian TV news was loaded with pictures and stories on Ukraine, essentially civil war and revolution. 

Small unorganized groups in eastern Ukraine are committed to doing whatever they can to resist the formal Ukrainian government. Here's a picture: Three guys at a makeshift 'roadblock' on a country road, standing next to a stack of old tires and concrete blocks, saying they would do whatever they could to fight if the Ukrainian army came their way.

When a resistance fighter dies, thousands of people attend memorial services and political demonstrations.

In a French documentary on the coal mining industry in eastern Ukraine, a major industry there, I learned a) People in eastern Ukraine complain that their lives have become worse every year since breakup of USSR over 20 years ago. They viewed their lives as happy and stable before; b) Coal mining has almost no safety standards so hundreds of miners die every year; c) With no work alternatives, mining jobs are viewed as good jobs; d) With no real safety standards or oversight or clear authorities, people desperate for money illegally mine coal in abandoned shafts and sell (at a discount) for cash to larger mine owners. 

Good income in this region is viewed as 300 euros ($420) / month.  Given such economic prospects, why not stand at a makeshift roadblock and fight to die? 

These people also see what has happened in other former Soviet states, where Russian language speakers have been treated as outlaws. A 'western friendly' government in Ukraine only means things will get worse for 'Russian friendly' Ukrainians. French, German, and Russian TV news all had lots of stories and images that you do not see in the US.

Regarding Turkey, I was very impressed by the growth. Suburbs in Istanbul, already a city bigger than New York, have hundreds of new and under construction apartment blocks. I sensed a strong nationalist mood. 

One taxi driver complained about Syrian refugees, saying they were a big problem, especially along the coast. Refugees walk or drive across the border, find their way to some friend or relative, and with no money or income, street crime and car crime are rising.

Thanks again for your great work.
David

Comments from Jacob Dreizin

I forwarded David's email to Jacob Dreizin, a US citizen who speaks Russian and reads Ukrainian. Jacob replied: "Thanks for that, Mish.  I'm not surprised that French TV is showing footage from the scene. A French reporter was wounded recently near Slaviasnk. On the same day, an Italian reporter lost his head to a mortar round in the same area. In contrast, U.S. media mostly reports out of their hotels in Kiev, relying on heavy doses of 'Ministry of Truth' press releases. It's pathetic."

House-to-House Searches

Earlier today Jacob reported ...

Eyewitness reports in Krasnyi Liman continue to pour in, and they are not good. The Ukrainian National Guard and militias are going house-to-house, searching, interrogating, rounding people up and taking them away.



Some people are said to have been shot in their homes. For the most part, it's hard to say what is rumor/hysteria, and what is fact.

One thing is certain: Kiev is responsible for the loss of lives in Lugansk, not errant rebel anti-aircraft missiles fired from the ground, as claimed by Kiev. Two hospital workers were killed in that attack, many more on the ground.

The Organization for Security and Cooperation (OSCE) in Europe made that claim in a press release.

Translating from my iPad: "In Luhansk the situation remained volatile. On 2 June, shortly after 15:00 hours, rockets hit the occupied regional administration building. Based on the SMM's limited observation, these strikes were the result of non-guided rockets shot from an aircraft."

"SMM" is the OSCE's Special Monitoring Mission to Ukraine.

I received several nasty emails a few days ago in response to Ukrainian Warplanes Miss Targets, Hit Civilians.

Some people believed Kiev's report that rebels caused the carnage.

Nope: Kiev did.

Surveillance Plane Shot Down



Jacob explains: "An An-30 surveillance plane, used as an artillery spotter, was shot down over Slaviansk today. It appears that at least some of the crew was able to parachute out."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Nonfarm Payrolls +217,000, Unemployment Rate Steady at 6.3%; Household Survey Employment +145,000

Initial Reaction

Once again the headline job number exceeded the household survey report, but unlike last month, the difference this month was insignificant.

May BLS Jobs Statistics at a Glance

• Nonfarm Payroll: +217,000 - Establishment Survey
• Employment: +145,000 - Household Survey
• Unemployment: +46,000 - Household Survey
• Involuntary Part-Time Work: -196,000 - Household Survey
• Voluntary Part-Time Work: +154,000 - Household Survey
• Baseline Unemployment Rate: +0.0 at 6.3% - Household Survey
• U-6 unemployment: -0.1 to 12.2% - Household Survey
• Civilian Non-institutional Population: +183,000
• Civilian Labor Force: +192,000 - Household Survey
• Not in Labor Force: -9,000 - Household Survey
• Participation Rate: +0.0 at 62.8 - Household Survey

Additional Notes About the Unemployment Rate

• The unemployment rate varies in accordance with the Household Survey, not the reported headline jobs number, and not in accordance with the weekly claims data.
• In the past year the population rose by 2,259,000.
• In the last year the labor force rose by 4,000.
• In the last year, those "not" in the labor force rose by 2,215,000
• Over the course of the last year, the number of people employed rose by 1,895,000 (an average of 158,000 a month)

The population rose by over 2 million, but the labor force was essentially flat. People dropping out of the work force accounts for nearly all of the declining unemployment rate.

May 2014 Employment Report

Please consider the Bureau of Labor Statistics (BLS) May 2014 Employment Report.

Total nonfarm payroll employment rose by 217,000 in May, and the unemployment rate held at 6.3 percent. Employment increased in professional and business services, health care and social assistance, food services, and transportation and warehousing.

Click on Any Chart in this Report to See a Sharper Image

Unemployment Rate - Seasonally Adjusted



Nonfarm Employment January 2003 - May 2014



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Nonfarm Employment Change from Previous Month by Job Type



Hours and Wages

Average weekly hours of all private employees has been flat for three months at 34.5 hours. Average weekly hours of all private service-providing employees rose 0.1 hours to at 33.4 hours.

Average hourly earnings of private workers rose $0.03 to $20.54. Average hourly earnings of private service-providing employees rose $0.03 to $20.33.

For discussion of income distribution, please see What's "Really" Behind Gross Inequalities In Income Distribution?

Birth Death Model

Starting January, I dropped the Birth/Death Model charts from this report. For those who follow the numbers, I keep this caution: Do not subtract the reported Birth-Death number from the reported headline number. That approach is statistically invalid. Should anything interesting arise in the Birth/Death numbers, I will add the charts back.

Table 15 BLS Alternate Measures of Unemployment



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Table A-15 is where one can find a better approximation of what the unemployment rate really is.

Notice I said "better" approximation not to be confused with "good" approximation.

The official unemployment rate is 6.3%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 12.2%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Labor Force Factors

1. Discouraged workers stop looking for jobs
2. People retire because they cannot find jobs
3. People go back to school hoping it will improve their chances of getting a job
4. People stay in school longer because they cannot find a job
5. Disability and disability fraud

Were it not for people dropping out of the labor force over the past several years, the unemployment rate would be well over 9%.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Book Review: The Lost Notebook

I recently received a copy of the new book The Lost Notebook: Herman Schultheis and the Secrets of Walt Disney's Movie Magic. 

The large hardbound book of 292 pages is a facsimile reproduction of a detailed scrapbook kept by Herman Schultheis, a technician at the Disney Studios in the late 1930s, while they were developing Pinocchio, Fantasia, Dumbo, and other classics of the art form.

Effects animation used in Sorcerer's Apprentice

Schultheis thoroughly documented every aspect of the production process, presumably to impress the boss someday, but the notebook was kept secret and was lost and forgotten for many years in a chest of drawers. 

Meanwhile, in another human mystery, Schultheis himself disappeared without a trace into the Guatemalan jungle, so his story hasn't been adequately told.

The scrapbook contains many photos of costumed models who provided reference footage to guide the animators. This aspect of the production process has become fairly well known.

But there are other revelations of pre-digital engineering ingenuity. For example, the movement of the fairy ballerinas in Fantasia based their movement on the workings of a contraption with steel rails and revolving spools. Snowflake cutouts were mounted on the spools and moved along the rails, creating geometry that would be impossible to accomplish otherwise at the time.

An expert camera technician, Schultheis shot many of the photos reference to guide the animators, such as the ballerinas and ostriches for the "Dance of the Hours" segment in Fantasia.

Even the mechanical clocks that appear in Geppetto's workshop (link to video clip) in Fantasia were created in workable form, so no wonder they're so convincing in the film.

The ghosts in the "Night on Bald Mountain" sequence of Fantasia were shot using a distortion mirror, and thankfully, Schultheis photographed the setup and described the process.

This book should spark a lot of ideas for working artists interested in exploring pre-digital film technology, and it will offer a wealth of insights for animation history fans. Given all the painstaking work that went into them, it's no wonder that the Disney features of the late 1930s were so expensive to produce. The marginal notes by animation historian John Canemaker add a lot to understanding each of the pages.

On a broader level for any artist, the book is a testament to the value of putting time and effort into research and development.

At Amazon: The Lost Notebook: Herman Schultheis and the Secrets of Walt Disney's Movie Magic

Wine Country Conference II Videos: Steen Jakobsen , Chris Martenson, Mish

The final second set of Wine Country Conference Speaker Presentation videos is now available.

This set features Steen Jakobsen on the "State of Flux", Chris Martenson on "The Coming Wealth Transfer", and Mish on "Misconceptions, Misperceptions, and Blind Spots".

This Year's Charity

As with last year, Wine Country Conference II was for charity. This year's cause was Autism. Many of the speakers donated all or part of their expense honorarium to the cause. I did as well, losing money, to put this event on.

Once again, John Hussman and the Hussman Foundation was amazingly generous. The foundation will match donations dollar for dollar, up to $50,000!

Steen Jakobsen: "State of Flux"



Chris Martenson: "The Coming Wealth Transfer"



Mish: "Misconceptions, Misperceptions, and Blind Spots



Mish, Steen Jakobsen, and Chris Martenson Panel Discussion



If you enjoy the videos (or even if you don't) please Make a Donation to the Autism Society.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com