Peering into the Future of the Sales Tax: Why Economy and - PowerPoint PPT Presentation

Peering into the Future of the Sales Tax: Why Economy and Demography Matter

A Far Too Common Picture $25,000 $20,000 $15,000 In Millions $10,000 $5,000 $- FY 13-14 FY 14-15 FY 15-16 FY 16-17 FY 17-18 FY 18-19 FY 19-20 FY 20-21 FY 21-22 FY 22-23 FY 23-24 FY 24-25 FY 25-26 FY 26-27 FY 27-28 FY 28-29 FY 29-30 TABOR refunds SB 228 HUTF and CC Reserve K-12, HCPF and Corrections Additional GF for Medicaid SUBTOTAL all other depts Revenue less rebates and exps and less EITC

Colorado’s Finances Remain Structurally Broken Cumulative Growth Rates from FY 13-14 through FY 29-30 for GF and SEF Revenues, CDE, and HCPF 250% 206.28% 200% 150% 113.33% 100% 95.27% 50% 0% Education HCPF Revenue

-15% -10% Concern The State Sales Tax is of Particular 10% 15% 20% -5% 0% 5% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Annual Growth Rate CAAGR 1980 – 2012: 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 CAAGR 1980 - 2012 2003 2004 Fiscal Year 2005 2006 2007 2008 2009 2010 2011 2012 CAAGR 2013-2030 2013 2014 2015 2016 2017 2018 CAAGR 2013 – 2030: 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Local Government* Outlook Similar CAAGR 1993-2013 = 3.18% * Best Case Scenario – Broad based municipal government with strong local economy

With Modest Inflation Forecast, Trend Local Government* Real Sales Tax Growth Expected to be 1%

And Inflation Affects Sectors Differently Source: ITEP http://itep.org/itep_reports/2013/08/a-closer-look-at-tabor-taxpayer-bill-of-rights.php#.VAYU-fldWSo

Sales Tax is the Workhorse of Local Government Finance in Colorado Source: Municipal CAFRs. Yellow bars represent 2013 data; green bars 2012 data.

The State Increasingly Relies on the Income Tax: Local Governments do not have this Option Source: CFC calculation from LCS data, adjusted for rate changes to sales, use and income taxes

E-Commerce as a Percent of Total Sales Commerce And Yes, Sales are Migrating to E- Source: US Census Bureau 0% 1% 2% 3% 4% 5% 6% 7% 00:Q1 00:Q2 00:Q3 00:Q4 01:Q1 01:Q2 01:Q3 01:Q4 02:Q1 02:Q2 02:Q3 02:Q4 E-Commerce as a Share of Total U.S. Sales 03:Q1 03:Q2 03:Q3 03:Q4 04:Q1 04:Q2 04:Q3 04:Q4 05:Q1 05:Q2 05:Q3 05:Q4 06:Q1 Calendar Year 06:Q2 06:Q3 06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4 10:Q1 10:Q2 10:Q3 10:Q4 11:Q1 11:Q2 11:Q3 11:Q4 12:Q1 12:Q2 12:Q3 12:Q4 13:Q1 13:Q2

But Estimated State and Local Tax Losses in Colorado only $173 Million in 2012 Source: Fox, et. al. at http://cber.bus.utk.edu/ecomm/ecom0409.pdf

Our Models Do Not Yet Account For Other Potentially More Damaging Headwinds to the Sales Tax

US Becoming an Increasingly Unmarried Nation: Singles Spend Less on Taxable Goods Source: Census Bureau, Bloomberg at http://www.bloomberg.com/news/2014-09-09/single-americans-now-comprise-more- than-half-the-u-s-population.html

And Evidence Mounting that Inequality Trends Affecting Tax Revenue

Goods Becoming Increasingly Smaller Share of Consumption, Regardless of Place of Purchase 80% 70% 60% 50% 40% 30% 20% 10% 0% 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 Calendar Year Goods Share Services Share Source: Moody’s Economy.com

Thought Experiment: How Many Goods Has Your Cell Phone Replaced? Land Line Phone Answering Machine Alarm Clock Hand Held Calculator Wristwatch Calendar Now Camera DVD Player GPS = Books Newspapers Maps/Atlases, etc. Music Players Notepads TVs And more…

This Shift is Seen in Sample Local Government in Colorado

And, Increasingly Purchases Made in Non-Traditional Ways

Access Trumps Ownership: Sharing Economy Estimated to be in the $Billions • Zilch • Peerby • OzRecycle • Rent the Runway • Jayride • Open Shed • Divvy • Friends with Things • MeeMeep • SpaceOut • Streetbank • Find a Uniform • Boulder Public Library • Freecycle

Since 2011, Ebay Sales Growth Outpacing US Retail Sales Growth Sources: Census for US Retail Sales, http://www.marketwatch.com/investing/stock/ebay/financials for Ebay Sales

Craigslist Statistics (as of March 26, 2012) Total number of local Craigslist sites 700 Number of countries that have a local Craigslist site 70 Number of Craigslist daily queries worldwide 50,000,000 Total percentage of all Craigslist revenue that comes from adult service ads 33 % Number of new classified ads that are published on Craigslist every month 40 million Number of used car ads viewed on Craigslist 9.2 million Number of page views Craigslist gets every month 20 billion Number of Americans who use Craigslist each year 50 million Source: http://www.statisticbrain.com/craigslist-statistics/

2013 Car-sharing Numbers 25 Number of active car-sharing operators 891,953 Car-sharing members 12,131 Number of vehicles being shared 24.1% Membership growth rate between 2012 and 2013 23.6% Fleet growth rate between 2012 and 2013 74:1 Member to vehicle ratio 0.4% Member to vehicle growth between 2012 and 2013 Source: http://tsrc.berkeley.edu/node/629

And, Consider This… 879,822 Fewer car purchases (if all car sharers otherwise bought vehicles)

Lodging Tax is also Vulnerable 1% increase in Air BNB listings 0.05% decrease in total hotel revenue Boston University Study of Texas Market And…Air BNB • Now exceeds 10 million bookings • Has more than 50,000 renters per night (18.25 million room nights/year) • Is adding 1,000 new hosts to its network daily • Bookings in Denver and Boulder are in top ten nationwide for summer 2014 Source: http://www.bizjournals.com/sanfrancisco/blog/2014/01/airbnb-eats-into- hotel-revenue.html, http://www.cntraveler.com/daily-traveler/2014/05/airbnb-top- summer-destination-is-nashville-tennessee

Peering into the Future: Will the Younger Consumer Hold Up? Will the Older Coloradan Behave as Previous Generations?

Student Loan Debt Now Tops $1 Trillion Nationally Source: Federal Reserve Bank of NY

And Colorado Ranks 7 th Highest in Nation for Per Capita Student Loan Debt Source: Federal Reserve Bank of NY

But 21 st in Student Loan Debt per Borrower Source: Federal Reserve Bank of NY

Under 30 Cohort Largest Accumulators of Student Loan Debt Source: Federal Reserve Bank of NY

And Also the Age Cohort Facing High Unemployment Rates US Unemployment, NSA 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 20 - 24 years old 25 - 29 years old Source: BLS

Colorado is Still Aging 2030 Population Share 2013 Population Share 23.9% 12.1% 18.0% 23.1% 64.0% 58.9% Share 0-17 Share 18-64 Share over 65 Share 0-17 Share 18-64 Share over 65 Source: Colorado State Demographer

And Aging Remains an Issue for Taxable Consumption Source: BLS Consumer Expenditure Survey

At the State Level, Policy Also Contributing to the Gap

TABOR Refunds Return TABOR Refund Forecast $1,000 $900 Refunds are taken from the General Fund and thus contribute $800 $700 $600 In Millions $500 $400 $300 $200 $100 $0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Fiscal Year

Refunds Would Not be Trigg ggered wit ithout Hospital l Provider Fee TABOR Refunds with and without Hospital Provider Fee $25,000 $20,000 Revenue Forecast, in Millions $15,000 $10,000 $5,000 $- Fiscal Year GF CF GF CF TABOR LIMIT

By 2030, TABOR Refunds Account for 31.02 Percent of Gap Share of Gap for which TABOR Refunds are Responsible 40% 35% 30% 25% 20% 15% 10% 5% 0% 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Fiscal Year

TABOR and Sales Tax Changes Provide an Almost Complete Short-Term Solution Closing the Gap by Eliminating TABOR Refund and Extending Sales Tax to Personal Services $3,500 $3,000 $2,500 In Millions $2,000 $1,500 $1,000 $500 $- Fiscal Year Gap Eliminate TABOR Refund ST on Services

Phyllis Resnick Phyllis.Resnick@colostate.edu http://coloradofutures.colostate.edu