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.
Lowell M. Smith Jr. is chief compliance officer and co-founder of IRALOGIX.
His previous experience includes working for the ERISA enforcement agency in the U.S. Department of Labor. He created a TPA compliance practice and consulted on products, procedures and technology for clients of Universal Pensions, now Ascensus. He is a published author and a frequent speaker at industry conferences.
Paul Tyler is Head of Enterprise Marketing and Marketing Innovation at Zinnia, previously serving as CMO at Nassau Financial Group where he led branding strategy, digital initiatives, and built direct-to-consumer channels for insurance products. With deep expertise in financial services marketing and digital transformation, Paul brings a practical perspective on how advisory firms can leverage technology to enhance client engagement while maintaining the human connection that's essential in financial services.
Gordon Gray is the executive director of the Pinpoint Policy Institute. Prior to launching Pinpoint, Gordon served as the vice president for economic policy at the American Action Forum, where his portfolio included the federal budget, taxes, the macroeconomic outlook and general economic policy matters.
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.