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.
Stephen Heymann is a shareholder with Chamberlain Hrdlicka's Trusts & Estates Practice Group in Atlanta.
He focuses on helping business owners and high net worth families preserve their hard-earned wealth through sophisticated income and wealth transfer tax-planning strategies.
Joseph Ugrin, PhD, CPA, is a professor, RSM endowed chair, and head of the department of accounting at the University of Northern Iowa. He has published dozens of research articles in accounting, business, and psychology. He serves as the associate editor for Advances in Accounting and on the editorial boards of other accounting and business journals. He has experience in public accounting and worked as a corporate financial manager.
Timothy Lindquist, PhD, is the PricewaterhouseCoopers professor of accounting at the University of Northern Iowa. Having previously served on the Editorial Board of Issues in Accounting Education he has published numerous research articles in a mix of high-level academic journals and high-impact practitioner journals. His experience in higher education spans nearly 40 years.
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.