US states see $31b tax revenue drop due to Covid-19 recession

Bloomberg

US states saw their tax revenue drop by about $31 billion, or 6%, from March through August, compared to the same period a year earlier, as the pandemic triggered economic shutdowns across the country, according to a 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% from a year earlier, the Urban Institute found.
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 rise 3.8% in August, were in some cases supported by backlogged unemployment insurance benefits subject to withholding tax, Dadayan said.
Between March and August, tax revenues fall 6.4% 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.

New Jersey, California
dodge worst of tax crisis
State tax revenues in some parts of the US are rebounding as economy emerges from the coronavirus lockdown, a positive sign for governors and mayors who had been bracing for the biggest fiscal crisis in decades.
August sales-tax receipts in hard-hit New Jersey rose 3% from a year earlier and non-partisan legislative analysts are forecasting that revenue will exceed Governor Phil Murphy’s projections by $1.4 billion for the fiscal year. California’s revenue is exceeding forecasts, Georgia’s collections are on the rise and Ohio’s Cuyahoga County — home to Cleveland — dodged almost all of the devastating blow it once predicted.
The figures are an early sign that the worst economic collapse since World War II may not decimate governments’ revenues as badly as some feared, potentially reducing the scale of budget cuts and tax increases that would exert a drag on the nation’s recovery. It’s also providing comfort to investors in the $3.9 trillion municipal-bond market who had anticipated that Congress would come through with hundreds of billions of dollars in aid, a prospect that is seen as increasingly unlikely until at least after the November election.

States and cities are still contending with large budget shortfalls and government officials caution that the good news may be fleeting, given that the disappearance of enhanced unemployment benefits or a resurgence in the coronavirus outbreak could deal another setback to the economy. And because of the lag with which income taxes are collected, states have historically continued to face big deficits well after recessions end.
Preliminary figures from 40 states show total state tax revenues were down by about $28 billion, or 7.5%, from March through July, the first five months of the pandemic, compared with the same period a year earlier, according to the Urban Institute. In fiscal year 2009, in the midst of the Great Recession, state tax revenue declined 8%, according to the National Association of State Budget Officers.