The past couple of weeks brought to a close the fiscal year for most state and municipal governments. This is a time to assess the condition of tax revenues and a time for states like Indiana that operate on a two-year budget to consider adjustments.
It is also a time for economists to puzzle over the tax figures and try to understand the current state of the economy.
State income taxes are a good place to try to begin understanding state economic performance because personal income is very sensitive to changes in the economy. Moreover, the process of withholding our estimated tax liability from our paychecks makes income tax revenues a good early predictor of the state of the overall economy. The past year tells an ominous story.