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Long Term Revenue Outlook 2008-2033. Tom Stinson John Peloquin August, 2008. Minnesota Population Growth Rates by Age Cohort, 2005-30. Method. Economic assumptions from Global Insight’s Spring 2008 Trendlong Scenario Used existing models for the income tax and sales tax
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Long Term Revenue Outlook2008-2033 Tom Stinson John Peloquin August, 2008
Method • Economic assumptions from Global Insight’s Spring 2008 Trendlong Scenario • Used existing models for the income tax and sales tax • Income tax model adjusted to reflect changes in age structure • Age growth projections provided by state demographer’s office • Current revenue forecast used through 2011
5 Year Average GDP Growth Rates from GII Trendlong Scenario % Change 5 Year Compound rate
Projected Labor Force Growth Rates to 2010, 2020, 2030; BLS, GII, and State Demographer
Labor Force Participation Rates Age 16-64; Selected Years, BLS, GII, and Minnesota
Labor Force Participation Rates Age 65+; Selected Years, BLS, GII, Mn
Percent Change in Population Age 65+ by Decade; BLS, GII, Mn %
Forecasting Income Tax Liability • HITS model revised to include 30 age classes: 15 working, 15 not working • Liability estimates required two runs • First run -- used just age growth variables • Second run -- adjusted blow-ups to hit target for total income in each income type • Minnesota per capita income for each type of income assumed to grow at the US average rate
Forecasting Sales Tax Liability • Used growth rates for 20 types of sales • Assumes that Global Insight has incorporated demographics appropriately in national consumption forecast • U.S. growth allocated to Minnesota based on income, wages, and employment • Revenue elasticity of .95 used, consistent with February forecast • Remote sales growth slows to US average by end of forecast horizon
Forecasting Other Revenues • Corporate • Based on growth in domestic corporate profits • Profit is a residual (GII uses it to balance the national income and product accounts) • Profit forecast prepared using Hodrick Prescott filter • Other • Analysts’ judgment about proper factor to use. Many grown at CPI growth rate
Other Items • Income tax estimates prepared on five year intervals • Sales tax estimates and corporate tax estimates prepared on annual basis • Most other revenue estimates prepared on five year basis • Values for intervening years obtained through interpolation • Historical revenue data from fund balances
5 Year Compound Growth RatesTotal Revenue and Per Capita Revenue
5 Year Compound Growth Rates Total W/out P Tax & Tobacco Money
5 Year Compound Growth Rates 2001, 2033Total and Per Capita Revenues
Understanding the State and Local Government Price Deflator • Measures inflation for goods and services purchased by state and local government • Includes salaries, equipment, energy and services • Does not measure inflation in government spending since transfer payments are excluded
5 Year Compound Growth Rates 2001, 2033Real Per Capita Revenues
Compound Growth Rates 2008-2033Total and Per Capita Revenues
5 Year Compound Growth Rates 2001, 2033Real Per Capita Revenues