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.
Jonathan Traub is managing principal and tax policy group leader in Deloitte Tax LLP's Washington National Tax Office. He was previously staff director for the House Ways and Means Committee, where he was responsible for developing legislative policies and strategy on issues in the committee's jurisdiction, including taxes, health care and trade.
Ben Callaghan is the chief experience officer at digital healthcare solution Empara.
Guy Gage III, LPC, is the co-owner of PartnersCoach Inc., a coaching and consulting firm working exclusively with CPA firms. He equips managers and partners to lead change initiatives and improve employee engagement in their firm. Holding a license in counseling (WV-LPC), he uses his experience in human and organizational behavior to coach firm leaders to break through resistance and create motivational environments. He has consulted with and coached CPA professionals for over 25 years in the U.S. and Europe, emphasizing firm growth and career fulfillment. In addition, he worked in a four-office CPA firm for almost eight years, giving him an inside look at the challenges firm leaders face. Reach him at (304) 677.0296 or Guy@PartnersCoach.com.
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.