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.
William G. (Bill) Stuart is the director of planning and business analysis at Voya Financial. He has been involved with Health Savings Accounts since their introduction in 2004 and writes frequently on compliance and strategy issues. He is the author of "HSAs: The Tax-Perfect Retirement Account." He chairs the American Bankers Association HSA Council's compliance committee, is president of the Massachusetts statewide chapter of the National Association of health Underwriters, and serves on the board and several committees at the Employers Council on Flexible Compensation.
Eileen Potter is Head of Insurance at intelligent automation company ABBYY. She has more than 25 years of insurance and insurance technology experience with extensive knowledge of commercial, personal, and specialty lines, including insurance operations on both the agency and company levels. She has worked in independent agencies and MGA operations in a variety of roles, including commercial marketing and underwriting. Her software background includes systems marketing, sales support, and implementation roles with organizations such as Appian, One, Inc., Duck Creek Technologies, and Fiserv, among others.
Yousef Abushanab is an ESG Analyst in RBC Global Asset Management's Corporate Governance and Responsible Investment group. Prior to joining RBC GAM in 2017, he worked for a global ESG research and ratings institution in Amsterdam, where he conducted research on governance practices of publicly listed companies and assisted with ratings analysis.
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.