While the headline number for joblessness fell to 8.1 percent on Friday for the month of April, there are some crueler numbers behind it.
News last week out of California suggests trouble is brewing. The report worth noting comes from Standard & Poor’s, and was confirmed by Gov. Jerry Brown’s office in Sacramento. S&P warns that weaker-than-expected income-tax receipts in California in April have blown an extra $1 billion hole in that state’s budget shortfall, and the year is only one-third over. And while all the numbers aren’t in for last month (typically the biggest month for tax receipts), California is far from alone in reporting revenue shortfalls due to fewer people paying income taxes. Massachusetts and Connecticut have recently reported disappointing numbers as well.
This marks a reversal of the slight improvement we saw in tax receipts during the fiscal year that ended in most states back in June 2011. And with state revenues still about 7 percent below their pre-crisis levels, the fact that income-tax receipts are trending lower again should be a red flag about the recovery.
Which brings us back to the jobs report. If the unemployment rate has fallen so far so fast in the past year, inquiring minds might wonder, why are state income-tax receipts under so much pressure?
Well, more than a half-million Americans disappeared from the labor force last month alone — that is, they stopped looking for work. When 552,000 people in one month decide they are not going to look for a job, that doesn’t bode well for the tax rolls going forward.
California hopes that tax revenues from the Facebook initial public offering will shine on the Golden State in the form of a one-time tax windfall of several billion dollars when Mark Zuckerberg and other Facebook founders exercise their stock options in the coming weeks, but other states won’t be so lucky.
Yes, an 8.1 percent unemployment rate sounds a lot better than 10 percent. But let’s face it, no one pays income taxes on a salary they don’t have or are no longer looking for.