State tax revenues take a major step in recovery

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For the first time since COVID-19 routed the state’s finances, tax revenues have risen enough to wipe out its losses from the initial pandemic in a majority of states, and total collections to l he nationwide was on the verge of doing the same.

After an initial sharp drop, state tax revenues recovered enough in February 2021 that 29 states received as much or more in the 12 months since the start of the pandemic than in the 12 months before the pandemic. , based on preliminary monthly data. of the Urban Institute. Idaho led all states with 11% more tax revenue in February than pre-pandemic levels.

Total state tax revenues were only 0.01% higher between March 2020 and February 2021 compared to the same months a year earlier, based on the institute’s preliminary data, which covers 49 states and are the most recent available. This means that for states collectively, cumulative tax revenue since the onset of COVID-19 has reached pre-pandemic levels for the first time, but without adjustment for inflation.

States have reached the milestone of sufficient monthly gains to offset monthly losses since the start of the pandemic much faster than after at least the previous two recessions. This only marks the beginning of states fully offsetting the effects of this recession, which has lowered tax collections in all 50 states by far less than initially expected, albeit with unusually disparate results from state to state. ‘other.

Even stable income growth can open budget gaps, as states rely on annual increases in tax revenue to keep pace with public services for a growing population, new spending demands, and inflation. Additionally, the national recovery to pre-pandemic levels masks the fact that cumulative tax collections remained depressed in February in at least 18 states, up to 49.2% lower than the same 12-month period a year earlier in Alaska. and more than 10%. below in at least three other states.

States will be able to use federal assistance from the recently enacted American Rescue Plan Act to cover losses in taxpayer dollars, which account for more than 80% of general fund budget spending in all 50 states. Those whose tax revenues decline while balancing their budgets will be able to use more of the $ 195 billion aid package for other purposes, such as offsetting COVID-19 spending, alleviating people’s economic distress, and companies, or invest in water, sewers. , or broadband projects.

The cumulative change in tax collections shows the net result of year-over-year differences in monthly revenue, which were unusually volatile in the 12 months following the declaration of the COVID-19 pandemic. According to data from the Urban Institute, revenue collectively in the first four months fell by $ 77.8 billion from the previous year – including sharp declines in April and May – then posted gains consecutive monthly year-over-year since July 2020, which totaled $ 77.9 billion in February. 2021. The largest year-over-year drop in monthly earnings in April (-49.2%) and the largest gain in July (75.1%) were mainly due to a delay in the deadline income tax filing which shifted large sums of payments compared to April. to July.

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Highlights state by state

February marked the first time that a majority of states made up for their losses from the pandemic – only 23 states had done so in January. A comparison of taxes declared for the 12 months since the start of the pandemic (March 2020 to February 2021) with the same period before the pandemic shows:

  • Tax revenues for 29 states had weathered their losses from the pandemic, with the largest gains from the previous year’s collections in Idaho (11%), Utah (8.7%), Colorado ( 8.0%), South Carolina (7.7%) and South Dakota. (7.2%).
  • Losses have consistently exceeded gains in at least 18 states, with collections lagging furthest behind in Alaska (-49.2%), Hawaii (-17.4%), North Dakota (-10.9 %) and Texas (-10.3%). In addition, tax revenue through January also lagged in Nevada (-10.8%) and New Mexico (-2.5%).
  • South Dakota is the only state that has avoided posting a loss in its cumulative revenue since the start of the pandemic, compared to the previous 12 months. In contrast, 10 states have consistently reported losses: Alaska, Arkansas, Hawaii, Minnesota, Missouri, Nevada, Oklahoma, Oregon, Pennsylvania and Texas. (Nevada data goes back to January.)
  • Among states that weathered the first losses from a pandemic, Idaho was the first in June 2020 to see its cumulative income return to pre-pandemic levels – after just four months. It was followed a month later by Colorado, Georgia, Nebraska and Vermont.
  • Maine, Rhode Island and Virginia escaped early tax revenue collections mid-year, but all three states are again reporting cumulative revenue gains over collections from the previous year.
  • The cumulative tax collections of six states rose enough to offset earlier losses for the first time in February: Ohio (0.1%), Illinois (0.1%), Iowa (0.2%), Massachusetts (0, 2%), Delaware (0.4%) and New York (0.5%).
  • While no monthly tax revenue data is available for Wyoming, the state’s own revenue forecast for January predicted a 23% drop in fiscal 2021 in the two main accounts that fund the spending. general operating costs, after a loss of 18% in fiscal year 2020.

This recession was unusual in its cause, sudden impact and widespread effects on state tax revenues. The tax fallout unfolded differently due to factors such as the economic makeup of each state, the share of jobs that can be performed remotely, the combination of taxes imposed, and differences in the number of COVID-19 cases and restrictions. public health issues, such as temporary business closures and limits on collection sizes.

Oil-producing states, such as Alaska and North Dakota, and those dependent on tourism, such as Florida, Hawaii, and Nevada, have seen some of the deepest and longest-standing tax revenue declines since the start of the pandemic. The reduction in travel as a result of COVID-19 has hurt businesses and jobs in the leisure and hospitality sector in tourism dependent states and also reduced the demand for fuel for airplanes and vehicles, further reducing increasing tax revenues in energy states already facing pre-pandemic declines in oil and natural gas prices.

However, the state budget outlook has improved dramatically with the increased pace of vaccinations, the easing of public health restrictions, forecasts of strong national economic growth, and the latest dose of federal taxpayer assistance. , businesses and state and local governments. According to recent reports from S&P Global Ratings, a few states with high proportions of employment in recreation and hospitality and some energy states may continue to face challenges, although the analyzes noted that Nevada and Texas – both registering tax revenue losses through February – are set to end. 2021 with one of the fastest growing economies in the country.

The next milestones for the state’s tax revenue will be to recover enough to exceed inflation and then show progress in resuming growth above pre-pandemic levels.

Barb Rosewicz is Project Director, Justin Theal is Officer, and Alexandre Fall is Partner of The Pew Charitable Trusts State Financial Health Project. This article was published by The Pew Charitable Trusts. Read the original article.



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