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.
Joel Friedlander is a Principal in Private Client Services, Financial Services Organization at Ernst & Young LLP.
Deanna Cuadra is a senior reporter at Employee Benefit News. Her work covers healthcare, U.S. policy and reform, challenges faced by women and parents in the workplace and innovation in work culture and leadership. Deanna previously worked as an editorial assistant at HealthDay, and was the co-founder and editor-in-chief of MidWave Magazine, a multimedia platform where college students were able to share their takes on pop culture and politics at the onset of the pandemic. When Deanna isn't knee-deep in healthcare policy, she directs and produces short films and documentaries that center marginalized communities. Deanna graduated with a bachelor's degree in film and media studies and East Asian studies from Columbia University.
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.