Illinois continues a slow economic recovery, according to the University of Illinois Flash Index, a monthly reading of the state’s economic performance. Despite that, final payments in tax returns caused the index to rise sharply in April. On a scale on which 100 marks the cut-off between growth and contraction, the index has rose from 104.7 to 105.8 since March. The April reading is the highest since August 2007—several months before the onset of the Great Recession.
The sharp increase can be explained by the unusually large final payments for 2012 tax returns, according to study author Fred Giertz. Tax payments are expected to increase around Tax Day each year, and the Flash takes this into account. The index will only increase sharply if the tax payments for a given month are unusually large in a given year compared to the same month in past years.
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In 2012, many taxpayers received higher than expected income—for example, through capital gains or bonuses. When taxes were filed in April, the taxpayers found that withholding and estimated payments failed to match their actual tax liabilities. This necessitated unusually large final payments when 2012 tax returns were filed.
“The April result does not necessarily reflect a surge in the Illinois economy,” Giertz said. “Instead, it represents a kind of catch up of growth that occurred over 2012.”
While the increase in the index is welcome news, it does not change the trend of very slow recovery from the recession that officially ended nearly four years ago. “The national economy grew at a 2.5 percent rate in the first quarter of 2013,” Giertz said. “This is a positive sign compared to the sluggish results for the last quarter of 2012. However, this growth was not sufficient enough to affect unemployment, especially in Illinois where it is 9.5 percent—almost two percentage points above the national rate.”
The index considers consumer spending, corporate earnings and personal income.