State tax revenues have largely recovered from the massive shake-up caused by the coronavirus pandemic, and state officials are cautiously optimistic about fiscal year 2022, which began in July for most states.

It is the conclusion of a recent poll public servants in 44 states by the Tax Policy Center of the Urban Institute and the Brookings Institution, as well as other analyzes of state revenues.

“Boosted by widespread gains in the fourth quarter, total state tax revenues had recovered to just 1.9% below their pre-pandemic levels at the end of 2020, after adjusting for inflation,” and revenues in 20 states had fully rebounded, ”according to an analysis of the data by the State fiscal health project to the Pew Charitable Trusts.

“Overall, the state’s tax revenues are poised to rebound much faster than after the Great Recession,” project director Barb Rosewicz wrote in a July 27 release.

Photos You Should See – July 2021

This contrasts sharply with the expectations of heads of state when the pandemic first hit the United States in March 2020 and shortly thereafter when the country entered a nationwide lockdown, when projections predicted losses ranging from $ 125 to $ 100 billion. Behind the better than expected result hides a confluence of factors:

  • The economic downturn has hit high-income workers the least, allowing them to continue to work remotely and generate tax revenues for states.
  • Many states have been able to collect sales taxes more adequately from online businesses as consumers have changed their purchasing habits.
  • The massive financial assistance from the federal government mitigated the economic effects of the recession while providing direct assistance to state and local budgets.

“Many states have expressed optimism for the current fiscal year, but at the same time many officials have expressed concern about the timing of post-federal aid,” said Lucy Dadayan, head of the post-federal aid. State Tax and Economic Review of the Tax Policy Center. Project. “It is truly unprecedented to get so much help from the federal government.”

Much of that aid went directly to individuals as Congress passed three stimulus packages totaling around $ 5,000 billion in direct payments to individuals and families as well as improved unemployment benefits. Businesses have also received loans and other help to keep employees on payroll and pay taxes while providing support to the economy. Unemployment benefits were cut early in about half of the states, while the entire program will end early next month.

About $ 200 billion of the $ 1.8 trillion CARES law passed by Congress in March 2020 went to the states. Most recent American rescue plan passed in March of this year provided $ 194 billion to states while leaving them considerable leeway on how to use it by the end of 2024.

“The ARP will play a major role in state spending over the next two years,” said Brian Sigritz, director of state tax studies at the National Association of State Budget Officers.

Sigritz says states as a whole expect revenue growth of around 3% on average in fiscal year 2022, while noting: “There is still some uncertainty in the aftermath of the pandemic “.

States, of course, are a microcosm of what’s going on at the federal level. Overall, economic growth is should be strong this year. The first and second quarters saw gross domestic product growing at an annual rate of over 6%, with expectations that it will slow down over the course of the year but remain high compared to recent years.

But the recovery unfolded differently in different states, as Pew’s analysis noted. Overall, at the end of 2020, 20 states had higher tax revenues than in 2019, with Idaho leading the way with an 11.2% increase, followed by Utah with 5.8%.

Alaska saw the biggest drop, at 34.4%, due to a collapse in starting energy taxes. The state has no general sales tax or personal income tax.

The other states that saw some of the biggest declines were North Dakota, down 25.7%, Hawaii, down 15.2%, Oregon with an 11.6% drop and the Nevada down 10.9%. States heavily dependent on energy or tourism recorded the largest declines. Florida, for example, was down 6.3%.

“States with progressive income tax structures have weathered the pandemic-induced recession better, and states that rely heavily on the hospitality and entertainment industry have suffered the most,” the report said. Tax Policy Center report.