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.
Giles Pearson, FCA, is the co-founder of Accountests Ltd, whose aim is to help avoid bad hires in accounting firms by using pre-employment skills and personality tests specifically designed for accountants. Prior to starting Accountests, he was a tax and private client partner of PwC in New Zealand for 18 years.
Andrea Riquier is a New York-based journalist who covers housing and finance.
John Cottongim is the co-founder and CTO of Roots Automation, creator of advanced, intelligent Digital Coworkers for the insurance industry. Before Roots Automation, Cottongim led the Enterprise Automation Hub of Mars, Inc. and had a 15-plus year career in large-scale global transformation programs. He has also helped two Fortune 500 companies build cognitive automation programs and scaled out the companies' process automation capabilities.
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.