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.
Vijay Pahuja is the business head for Sutherland's Insurance business. Vijay leads a team committed to continued growth, value creation and service transformation for insurance clients across all insurance segments globally. Vijay’s Insurance career spans over twenty-two years, with a proven track record of building business units, accelerating performance and maximizing value for Insurers globally. An Operations and Strategy professional by trade, Vijay brings depth across all segments of retail, commercial and group insurance, in transforming target operating models, product / service portfolio planning, and full-stack digital technology and analytics enablement. He has advised insurers worldwide on their strategy to build competitive advantage in their transformational efforts to introduce new products & services, promote innovation, change business models and expand globally.
Michael E. Toth is a market leader in EY's Workforce Advisory Services Practice, focusing on companies in the financial services industry. Prior to joining EY’s Workforce Advisory Practice, he was a senior member of EY’s Tax Credits and Incentives Practice for financial services clients, where he provided advice on a variety of local and state incentive programs.
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.