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.
Laura Drabik is a frequent commentator on issues of transformation and innovation in the P&C insurance industry and Chief Evangelist at Guidewire. Drabik also oversees the Guidewire Insurtech Vanguard program, which helps insurers learn about the hottest new insurtechs and how to leverage their capabilities quickly and efficiently. She is also the author of Drabik Digest and the host of the InsurTalk podcast.
Michael Giusti, M.B.A., is an analyst at insuranceQuotes.com, which publishes in-depth studies, data and analysis related to auto, home, health, life and business insurance. In his role as analyst, Michael studies the insurance industry in order to provide trusted tips, advice and insights. He has worked as a journalist for more than 20 years, including as a reporter at a daily newspaper in Florida, as an editor at a regional business journal, and as a writer for national and international publications. Michael is based out of New Orleans.
Eyal Shinar is an expert in AI, machine learning and financial software. He is currently the Co-founder and CEO of Black Ore, a leading AI platform for financial services.
Prior to Black Ore, Eyal was Co-founder, CEO and later Executive Chairman of Fundbox, a leading machine learning payments & credit company. Eyal left Fundbox in 2021 to start Black Ore.
Prior to Fundbox, Eyal served as VP at Battery Ventures, leading projects and investments in finance, machine learning and SaaS.
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.