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.
Elizabeth Urish is a director for Steel Tower Investments. She provides wealth counsel to her clients, coordinating the multiple facets of their financial lives, and also works with the firm’s institutional clients, advising captive insurance companies on their investment management needs. She began her financial services career in New York with Deutsche Bank. As a vice president on the investment bank’s trading floor, she designed and executed bespoke investments across all asset classes for mutual funds, wealth management firms and high-net-worth individuals.
Traci Rutter, EA, MBA, is a tax supervisor, with Urish Popeck & Co. She has over 20 years of tax consulting and advisory experience. She serves clients in a variety of industries, but is primarily focused on higher education, professional services and technology. Her client service responsibilities are focused on providing tax structuring and consulting services to large, consolidated public or multistate C corporations, S corporations and partnerships. Prior to joining Urish Popeck, she worked with other regional accounting firms.
Given the size and number of tax changes proposed by the Biden administration, it’s no wonder advisors face challenges in helping clients prepare for the year ahead.
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.