U.S. states saw their tax revenue drop by about $31 billion, or 6 percent, from March through August, compared to the same period a year earlier, as the pandemic triggered economic shutdowns across the country, according to data from 44 states compiled by the Urban Institute.
The scale of the drop appears smaller than expected, relative to the depth of the economic contraction, and comes after several states have reported that their revenue didn’t decline as much as anticipated despite business shutdowns and increased unemployment. In August, when much of the country was reopening, state revenue climbed about 1.1 percent from a year earlier, the Urban Institute found.
Bradley Niedzielski is an audit and assurance partner at Deloitte & Touche LLP based in Deloitte's New York office who has served a variety of complex global financial services clients across both the public and private sectors for over 20 years.
Brandon Chandler is an audit and assurance partner at Deloitte & Touche LLP. As the leader within the accounting advisory & transformation services practice in Atlanta/Birmingham, he oversees all aspects of the Atlanta/Birmingham AATS practice including quality, innovation, growth and talent strategies.
Lindsay Rosenfeld is an audit and assurance partner at Deloitte & Touche LLP. As the national market offering leader for governance, risk, and controls within Deloitte's accounting & reporting advisory practice, she specializes in SOX readiness and the modernization of SOX and internal control programs. She also assists companies in implementing technology solutions to manage these programs effectively.
The tax figures come as Republicans in Washington balk at extending aid to states and cities to help cover budget deficits that are expected to continue as the coronavirus weighs on the economy. Experts say that states’ financial outlooks could worsen as the effects of the stimulus bill fade and high unemployment reduces tax bills next year.
The August increase should be viewed with caution since income-tax deadlines were pushed back to July, which could have resulted in some revenue being processed later, according to Lucy Dadayan, senior research associate with the Urban-Brookings Tax Policy Center at the Urban Institute. Personal income-tax collections, which rose 3.8 percent in August, were in some cases supported by backlogged unemployment insurance benefits subject to withholding tax, Dadayan said.
Between March and August, tax revenues fell 6.4 percent year over year, with 36 states reporting declines over that period, the report said. Between March and August, eight states, including Washington and Georgia, reported growth in tax revenue.
“Due to the shifting in timing of tax receipts this past year, it is crucial to view August year-over-year revenue gains and fiscal year to date data with caution,” Dadayan said in the report.