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

$- $5,000 $10,000 $15,000 $20,000 $25,000

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

In Millions

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

113.33% 206.28% 95.27% 0% 50% 100% 150% 200% 250%

Cumulative Growth Rates from FY 13-14 through FY 29-30 for GF and SEF Revenues, CDE, and HCPF

Education HCPF Revenue

The State Sales Tax is of Particular Concern

• 15%
• 10%
• 5%

0% 5% 10% 15% 20%

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Fiscal Year Annual Growth Rate CAAGR 1980 - 2012 CAAGR 2013-2030

CAAGR 2013 – 2030: CAAGR 1980 – 2012:

Local Government* Outlook Similar

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

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

And Yes, Sales are Migrating to E- Commerce

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 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 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

E-Commerce as a Percent of Total Sales Calendar Year

E-Commerce as a Share of Total U.S. Sales Source: US Census Bureau

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

• n 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

0% 10% 20% 30% 40% 50% 60% 70% 80%

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?

Now =

Land Line Phone Answering Machine Alarm Clock Hand Held Calculator Wristwatch Calendar 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

• Peerby
• Rent the Runway
• Open Shed
• Friends with Things
• SpaceOut
• Find a Uniform
• Freecycle
• Zilch
• OzRecycle
• Jayride
• Divvy
• MeeMeep
• Streetbank
• Boulder Public Library

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

25 891,953 12,131 24.1% 23.6% 74:1 0.4% Number of active car-sharing operators Car-sharing members Number of vehicles being shared Membership growth rate between 2012 and 2013 Fleet growth rate between 2012 and 2013 Member to vehicle ratio 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

• therwise

bought vehicles)

Lodging Tax is also Vulnerable

1% increase in Air BNB listings 0.05% decrease in total hotel revenue

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 7th Highest in Nation for Per Capita Student Loan Debt

Source: Federal Reserve Bank of NY

But 21st 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

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%

US Unemployment, NSA

20 - 24 years old 25 - 29 years old

Source: BLS

Colorado is Still Aging

23.9% 64.0% 12.1%

2013 Population Share

Share 0-17 Share 18-64 Share over 65

23.1% 58.9% 18.0%

2030 Population Share

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

$0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 In Millions Fiscal Year

TABOR Refund Forecast

Refunds are taken from the General Fund and thus contribute

Refunds Would Not be Trigg ggered wit ithout Hospital l Provider Fee

$- $5,000 $10,000 $15,000 $20,000 $25,000 Revenue Forecast, in Millions Fiscal Year

TABOR Refunds with and without Hospital Provider Fee

GF CF GF CF TABOR LIMIT

By 2030, TABOR Refunds Account for 31.02 Percent of Gap

0% 5% 10% 15% 20% 25% 30% 35% 40%

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Fiscal Year

Share of Gap for which TABOR Refunds are Responsible

TABOR and Sales Tax Changes Provide an Almost Complete Short-Term Solution

$- $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 In Millions Fiscal Year

Closing the Gap by Eliminating TABOR Refund and Extending Sales Tax to Personal Services

Gap Eliminate TABOR Refund ST on Services

Phyllis Resnick

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