Transcript Business Factor Tax

State Association of Accountants,
Auditors & Business Administrators
(SAAABA)
April 27, 2016
Jay Wortley
Economist
Michigan Department of Treasury
Governor & Legislature determine the
spending side of the Budget (& tax policy
changes).
Economists in the Dept. of Treasury and the
Fiscal Agencies determine the revenue side.
The overall Revenue Estimate is important
because it tells the Decision Makers how much
money they will likely have to spend.
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2015
September
November
December
2016
January
February
May
June
3
Preliminary Economic & Revenue Forecast
U of M Economic Outlook Conference
Governor’s Economic Outlook Briefing
Revise Economic & Revenue Forecast
Consensus Revenue Estimating Conference
Governor’s Executive Budget Presented
Revise Economic & Revenue Forecast
Consensus Revenue Estimating Conference
Budget Adopted
2016 (cont)
September
October
November
December
2017
January
February
May
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Revise Economic & Revenue Forecast
Enacted Budget Implemented
U of M Economic Outlook Conference
Governor’s Economic Outlook Briefing
Revise Economic & Revenue Forecast
Consensus Revenue Estimating Conference
Governor Recommends Budget Adjustments
Revise Economic & Revenue Forecast
Consensus Revenue Estimating Conference
Michigan’s Total Revenue & Major Sources
FY 2017 Total Revenue Estimated at $55.5 Billion
Transfers and
Other
10%
Sales/Use
16%
CIT/Ins/MBT
1%
Income Tax
17%
Federal Aid
41%
Other Taxes
15%
5
Source: January 2016 Consensus Revenue Estimates and Governor’s Executive Budget for FY 2017.
General Fund Revenue Sources
FY 2017 Est. Revenue: $10.2 Billion
Federal Other Revenue
3.3%
Other Taxes Aid
0.3%
4.2%
Business Taxes
7.0%
Jan 2016 Consensus Estimate and does
not include beginning balance
Sales & Use Tax
18.3%
Income Tax
66.8%
67% of general fund revenue comes from Personal Income Tax.
6
Source: Consensus revenue estimates, 1/14/16
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School Aid Fund Revenue Sources
FY 2017 Est Revenue: $12.5 Billion
Gambling Revenues
7%
Tobacco/Liquor and
Other
4%
January 2016
Consensus Estimates
Property / Real
Estate Transfer Tax
18%
Sales and Use Tax
49%
Income Tax
22%
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Source: Office of Revenue and Tax Analysis, Michigan Department of Treasury, January 2016 consensus
estimates, 1/14/2016.
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Monitor and Study Economic Developments
Prepare Economic Forecast for U.S.
Prepare Economic Forecast for MI
Prepare Administration’s Revenue Estimates
Consensus Revenue Estimates
Compare Monthly Revenue Collections and
Estimates for Accuracy
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The Perception...
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Prepared by Office of Revenue and Tax Analysis
The Reality...
University of Michigan Forecast
Non-Gov’t
Economists
& Business
Leaders
Staff
Judgment
Independent
Economic
Forecasts
Input Adjustments to U of M Model
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ORTA ECONOMIC FORECAST
Prepared by Office of Revenue and Tax Analysis
Monitor/study current economic activity (GDP, labor
market, housing market, inflation . . .)
Review independent economic forecasts
(UofM’s
RSQE, IHS Global Insights, Economy.Com, Blue Chip).
Meet with economists/rev estimators from
other states
Talk with leading economists and business
leaders in Michigan (Governor’s Economic Briefing and meetings
with Business Leaders for Michigan).
Experience
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The Reality . . .
Economic
Forecast
Model
Rev. Forecast
Judgment
Book
Closing
ORTA
Analysis
of Simultaneous
Interactions
Revenue
Tracking
Fiscal
Notes
Revenue
Sharing
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Office of Revenue and Tax Analysis, Michigan Department of Treasury
Revenue
Forecast
Law: P.A. 72 of 1991 requires that Consensus Revenue
Estimating Conferences be held.
Purpose: Adopt consensus revenue est. for Governor and
Legislators to use in preparing budget.
Participants: State Treasurer, Directors of the Senate and House
Fiscal Agencies.
Meetings: Must meet at least twice a year; January and May.
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Additional Meetings: A participant can call a special
meeting at anytime they feel is necessary.
Consensus: In order for there to be a consensus, the
agreement must be unanimous.
Required to agree on:
Economic forecast of major variables
Major taxes; GF-GP and SAF revenue
School Aid Index
Constitutional Revenue Limit
BSF Pay-in/Pay-out
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Office of Revenue and Tax Analysis, Michigan Department of Treasury
Admin
Forecast
House
Fiscal
Negotiations
Consensus
Estimates
Senate
Fiscal
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Office of Revenue and Tax Analysis, Michigan Department of Treasury
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Consensus revenue estimates must be
monitored to see if they are accurate or not.
Must breakdown FY estimates into monthly
estimates.
Monthly collection patterns and non-economic
timing factors are used to set monthly estimates.
Issue monthly reports comparing estimates and
actual collections.
The earlier a shortfall in revenue is identified,
the more options available to balance budget.
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Predicting Economic Turning Points
Predicting Impact of Never-BeforeExperienced Structural Changes
Federal Data Revisions
Incorporating Impact of Changes in
Wealth
Estimating Impact of Law Changes
Understanding Taxpayer Behavior
Prepared by Office of Revenue and Tax Analysis
MI Personal Income Growth Impacts
Individual Income Tax Collections
Michigan Personal Income Year-Over-Year % Change
6.1%
2.7%
1.1%
4.1% 4.3% 4.4% 4.2%
3.6%
3.5%
2.8%
2.5% 2.7% 2.6% 2.2%
1.6%
0.5%
Consensus
Forecast
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20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
03
20
02
20
01
-5.1%
Note: U.S. Bureau of Economic Analysis. 2016-2017 estimates are January 2016 consensus estimates.
Michigan Gasoline Prices
Difficult to Estimate Due to Volatility
$5.00
June 2008
$4.11
$4.50
June 2014
$3.91
$4.00
$3.50
$3.00
Jan 2000
$2.50
$1.38
$2.00
$1.50
Jan 2015
$1.93
Dec 2008
$1.68
$1.00
$0.50
$0.00
Jan-00
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Jan-02
Source: AAA Michigan
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Jan-14
Dec 2015
$1.86
Sales Tax & Income Tax Withholding Growth Rates
FY 1996 – FY 2016 To-date
•
From FY96 to FY14, sales tax grew
2.6% per year and withholding
grew 3.1%.
•
Despite strong economy, decline in
gasoline prices beginning in the fall
of 2014, reduced sales tax revenue.
•
Consumers are not spending their
gasoline savings on other taxable
items.
•
Sales tax revenue declined in FY15
and so far in FY16 while
withholding had strong growth.
12%
7.5%
8%
Sales Tax
4%
0%
-1.1%
-4%
-8%
Withholding
-12%
FY 1996
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FY 2000
FY 2004
Source: Michigan Department of Treasury.
FY 2008
FY 2012
FY 2016 YTD
Sales and Use Tax Base Not
Growing With Economy
Michigan Sales and Use Tax Base as a % of Personal Income
55%
50%
45%
40%
FY 1978
50.3%
FY 1996
44.3%
FY 2016
Est.
34.8%
35%
30%
1977-78 1981-82 1985-86 1989-90 1993-94 1997-98 2001-02 2005-06 2009-10 2013-14
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Source: U.S. Bureau of Economic Analysis & Michigan CAFR (various years). Compiled by MI Dept. of
Treasury, 1/8/16. FY 2016 based on 1/7/16 revised revenue estimates.
MI Motor Vehicle Production & Employment
Productivity Has Improved Dramatically
Millions of Units
3.0
2.5
2.0
400
3.1
2.7
2.9 2.8
350
2.6 2.5
2.3 2.3
2.3
2.5 2.4 2.4 2.5 300
250
1.9
1.8
1.6
1.5
200
1.1
150
1.0
100
0.5
50
0.0
0
2000 2002 2004 2006 2008 2010 2012 2014 2016
Production
Employment
Treasury
Est.
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Source: Michigan Department of Treasury & U.S. Bureau of Labor Statistics.
Thousands of Employees
3.5
MI changed how it taxes businesses in 2012.
MI adopted a new Corporate Income Tax for
corporations
The MBT is still paid by businesses with multi-year
refundable credits.
Corporate profits can be very volatile from yearto-year.
There is some uncertainty about when the MBT
credits will be claimed.
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7.5%
7.0%
6.5%
1999
7.2%
2008
6.2%
6.0%
2015
5.2%
2016
Est.
5.1%
5.5%
5.0%
95 996 997 998 999 000 001 002 003 004 005 006 007 008 009 010 011 012 013 014 015 016
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1
1
1
1
1
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
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Source: Office of Revenue and Tax Analysis, Michigan Dept. of Treasury, 1/7/2016.
(GF-GP & SAF Revenue, millions)
$25.0
FY08
$21.8
FY00
$20.6
FY16
$22.0
$20.0
$15.0
FY00
$9.4
$10.0
FY16
$6.3
$5.0
Actual
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Real
Note: GF-GP & SAF figures are presented on a Consensus basis. 2016: Jan 2016 consensus estimate.
Source: Department of Treasury, ORTA, updated 3/22/16
2015
2010
2005
2000
1995
1990
1985
1980
$0.0
FY90
$6.3
GF/GP & SAF Rev Estimate Error Rates
% Fiscal Year Actual Rev Was Above (Below) Estimate
6%
5.1%
4.5%
3.4%
4%
2%
0.2%
0.8%
0.2%
0%
-2%
-1.7%
-4%
-6%
-8%
-10%
2008
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-9.5%
2009
2010
2011
2012
2013
2014
Source: MI Dept. of Treasury. Estimate made in May prior to start of FY compared with final revenues.
2015
Economic Fundamentals are Good
Employment is Growing
Vehicle Sales at Historical Highs
Inflation Low, But Edging Up
Interest Rates are Beginning to Rise
Housing Improving Slowly
Risks: International Issues, Fed & Financial
Sector, Consumers & Housing
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Slower rest-of-world economic growth: China,
Japan, Europe.
Federal Reserve: Tighter monetary policy . . .
when, how much, financial sector reaction?
Housing Sector: Could be stronger than
expected.
Consumers: If oil prices remain low, will they
spend their “savings”?
Adverse weather.
(millions)
$187
$99
$54
$45
Taxes
Lottery
-$4
-$47
-$82
Income
30
ST&UT
MBT/CIT Other Tax
Source: Michigan Department of Treasury. (4/11/2016)
Tax+Lott.
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