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.
Thomas Shea is a tax partner and principal at EY.
Alex Dalyac is the co-founder and CEO of Tractable, which develops artificial intelligence for accident and disaster recovery. Working with the largest insurers across the United States, Europe and Asia, Tractable's AI has accelerated accident recovery for hundreds of thousands of households. Prior to Tractable, Alex performed research at Imperial College London, where he led the Computing department’s first industrial application of deep learning. Alex has also been named by Forbes in its Europe 30 Under 30 for Technology and by the FT as one of the UK’s top 100 entrepreneurs.
Brian Strom is the co-founder and CTO of Elevate, a next-generation consumer-directed benefits platform that offers modern, API-driven tax-advantaged benefits experiences (think HSAs, FSAs, HRAs, commuter benefits, and more).
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.