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Economics Institute Forecasts Ongoing Recovery Next Year

Personal income and state tax revenues could increase significantly in the coming year but employment will continue to lag, according to the latest quarterly economic forecast produced by The University of Iowa’s Institute for Economic Research.

“The recent data suggest that fiscal year 2011 will be dramatically better than 2010 in state revenue collections,” said Charles Whiteman, economist and associate dean of the UI’s Tippie College of Business and director of the institute. “The pattern suggests that this year will be a recovery year, and that conclusion is based on the historical record of the recoveries from the tough economic times of the mid-1980s in Iowa, the recession of 1990-91, and the recession of 2001.”

According to the report, presented this week to the state’s Revenue Estimating Conference, personal income in Iowa, when adjusted for inflation, is expected to grow by 1.7 percent in the remainder of the current 2010 fiscal year, 1.3 percent in 2011, and 1.9 percent in 2012.

The report also says Iowa revenue growth could increase by as much as 7.1 percent in the 2011 fiscal year and 6.5 percent in fiscal year 2012.

Whiteman acknowledges that his estimates are more upbeat than others, but points out that during the current fiscal year, personal income tax receipts are already up 6.1 percent, while corporate income taxes are up 15.5 percent. The sales and use category is up 3.5 percent.

However, Whiteman’s report says that employment in Iowa will continue to shrink, ending the current year down 0.6 percent. Whiteman expects employment will grow modestly by 0.6 percent in 2011 and by 1 percent in 2012.

Whiteman warns that the numbers could change significantly, depending on whether Congress renews the federal tax cuts instituted under President George W. Bush or allows them to expire.

The Institute for Economic Research serves Iowans as an advisory group to the Governor's Council of Economic Advisors. The council's discussions are, in turn, used by the state's Revenue Estimating Conference in determining the official prediction of the rate of growth of tax revenues for the coming two fiscal years. The Board of Regents created the institute in 1975 to facilitate cohesive and continuing economic research, and to establish a formal mechanism for providing interaction with, and economic research services to, government and industry. Each quarter, the institute produces the Iowa Economic Forecast, which contains quantitative forecasts of economic conditions and tax revenues for the State of Iowa using the latest advances in econometrics.


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