Assistant Professor Luke Spreen and Assistant Research Professor Juan Pablo Martinez Guzman recently won a Research and Scholarship Award for their project, “How Did State Revenue Forecasters Manage Uncertainty Arising from the 2017 Tax Cuts and Jobs Act?”
The award, given by the University of Maryland Graduate School, aims to support faculty research, scholarship and creative activity while also enhancing graduate student mentoring. Using the award, Spreen and Martinez Guzman plan to bring a graduate student onto the project this summer.
“The goal of the project is to determine how effective state governments were at forecasting the additional income tax revenue they received in 2018 as a result of the federal tax law,” Spreen says. “Most states’ definition of taxable income is directly tied to the federal definition, so when a tax reform occurs at the federal level, it can actually increase or decrease the amount of income tax revenue state governments receive.”
Spreen says even without significant reforms it can be difficult for revenue forecasters to develop accurate and timely revenue forecasts to help states prepare their budgets. “State income tax revenue is determined in large part by unpredictable economic factors: unemployment, wage growth, migration, among others,” he says.
He adds that the results of their study will have implications for state governments because bonus revenue can lead to additional state spending or tax cuts. “We hope to identify which state revenue forecasting practices were most beneficial toward accurately estimating the additional 2018 income tax revenue as a result of the 2017 TCJA. The findings from this study should benefit state governments by highlighting best practices in revenue forecasting methodology.”