Dramamine for State Revenue Volatility

Today's Wall Street Journal features an article titled "As Investors Get Bit, States Feel Pain" on page A2.  Among other things, the piece discusses the potential implications of recent declines in the stock market for state budgets, especially in those states-- like California, New York, New Jersey, Connecticut and Massachusetts-- that rely heavily on taxes from investment income.  The short answer: not good.  Things were starting to look better during the first half of the year, but not so much in recent weeks. The article notes that as of July 1 the Dow was up 8.7 percent year the year, but as of Friday was down 6.6 percent for 2011.  These large swings are one of the main factors underlying state revenue volatility-- or "The Price of Taxing the Rich" as Robert Frank put it in a March article in the WSJ.  They're also a major factor behind the increasing difficulty of providing accurate revenue forecasting at the state level, as discussed in this excellent Pew/Rockefeller Report.  Today's article quotes a spokesman for California Department of Finance on how to cope with revenue volatility: "The only thing we've learned since late June is that you should keep a bottle of Dramamine at your desk."