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.
Stuart Cobbe is head of product for audit at Thomson Reuters, where he leads the development of technology for audit professionals. His focus is on providing the most automated end-to-end audit workflow without losing the auditor's judgment and the standards a professional audit requires. Previously, he held product leadership roles at an AI-driven financial analytics company, cofounded a financial reporting startup and built an award-winning analytics team from the ground up at a top 10 UK accountancy practice.
Ashley Jiang, CPA, CIPM, is an audit manager, asset management, at Baker Tilly US. She serves clients who manage a wide range of asset classes including equity, traditional fixed income, private placements, and private equity with various investment structures including hedge funds, funds of funds, and master-feeders.
Nikhil Raghuveera is co-Founder and CEO of Predicate. Nikhil is also a nonresident senior fellow at the Atlantic Council's GeoEconomics Center, where he has published research on DeFi, stablecoins and central bank digital currencies. Nikhil graduated with an MBA from The Wharton School and an MPA from the Harvard Kennedy School.
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.