States see $31B of taxes disappear due to COVID recession

Revenue dropped 6 percent as the pandemic triggered economic shutdowns across the country, according to data from 44 states compiled by the Urban Institute.

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.

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Katerina Brahy is vice president of product and engagement at Maps Credit Union, a member-owned financial cooperative based in Oregon. She is currently researching how "relational risk" shapes loyalty, decision-making and long-term relevance in financial systems.

Kevin C. Gillen holds positions as both a senior research fellow with the Lindy Institute for Urban Innovation and an adjunct professor of finance at Drexel University. His research is concentrated on applied work in the analysis of real estate developments and operation of real estate markets, including their fiscal, economic and financial implications. He holds a doctorate in economics.

As the chief people officer at Firstup, Sabra Sciolaro leads the organization's strategic initiatives to attract, develop and retain top talent, while fostering a culture of inclusivity, collaboration and innovation. She has a deep passion for people and a commitment to creating exceptional employee experiences. She believes people are at the heart of any organization's success and are dedicated to creating an environment where employees feel valued, empowered and inspired to perform at their best.

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.

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A boarded up Isabel Marant store closed in the SoHo neighborhood of New York.
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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.