States from California to Maryland are using higher than expected incomes in this Covid economy to fuel their own relief efforts in the absence of additional federal aid.
Total tax revenue collected in the 50 states fell 1.8% from March to December 2020 compared to the same period in 2019, according to data from the Tax Policy Center, but even when pandemic pain hit jobs and main streets, many states collected more taxes than they did. expected at the start of the epidemic.
Some of these states want to use the unexpected money for future tax breaks or to help people and businesses still struggling.
“Now that some governors realize they are not drowning, they are trying to bring so much relief to those who have just been absolutely destroyed by the pandemic,” said Richard Auxier, senior policy associate at the Tax Policy Center.
Twenty-one states reported an increase in revenue from March to December 2020 compared to the same period in 2019, and many more harvested significantly more than expected last spring, when Covid-19 took off. began to ravage businesses large and small. At that time, officials predicted drastic drops in income that did not fully materialize several months later.
Some of these states even have enough money to consider tax breaks and tax cuts, thanks to spending restraint, federal stimulus funds, and online sales boom taxes, not to mention the fact that Income tax collections, received months later than usual due to late tax deadlines, were based on pre-virus income.
“We saw good tax revenue last year because it was mostly taxes from the previous year, which were not earmarked,” said Ulrik Boesen, senior policy analyst at the Tax Foundation. He also said that some local government coffers are actually fuller as property taxes, their main source of income, have been relatively unaffected so far.
However, healthy tax levies may not continue as damage from the coronavirus makes its way through the system, affecting taxes owed on 2020 income as well as property assessments.
And while things are less dire than expected, total state tax revenues in all 50 states were still down $ 37.4 billion in the first three quarters of 2020 from a year earlier, a down 4.4%, according to the US Census Bureau. The data compiled by the Tax foundation.
“It’s important to remember that incomes are no better than expected before the coronavirus,” Auxier said. “It’s better than expected at the start, when we had no idea what was going on. Every major political goal before the pandemic is always put aside. “
States like California and Arizona with progressive income tax structures remain afloat, while states that depend on tax revenues from tourism or energy production – Alaska, North Dakota and the Florida, for example – doesn’t fare as well, said Brian Sigritz, director of state and tax studies for the National Association of State Budget Officers.
Federal stimulus checks, improved unemployment benefits, paycheck protection program loans and higher than expected tax revenues are also helping states stay in good fiscal health, he said.
“We’re still seeing declines, but they’re not as bad as expected,” Sigritz said.
Some states with strong incomes in the pandemic era can use them to offer tax cuts to attract businesses and a newly mobile population. Still, many states holding on right now expect deficits to resurface within a few years, he said.
Savings for Stimulus
In Maryland, authorities now expect revenue to decline by $ 921 million over the next two fiscal years, about $ 3.8 billion lower than financial reports expected in April.
“Our state economy has not seen the drastic slowdown expected by leading national economists, and we are now facing paltry deficits compared to the original doomsday forecast,” Gov. Larry Hogan said (R ) in a January 19 press release. budget letter to the legislative branch in which he announced Payments up to $ 600 for low-income individuals and $ 900 for families.
The state began sending out the first round of stimulus checks on Tuesday after Hogan approved his budget after it was passed by the state legislature.
California has gone well beyond reversing its mid-2020 projection of a $ 54 billion deficit: it has a $ 15 billion surplus instead. Gov. Gavin Newsom wants to spend some of that surplus on the economic recovery, including $ 600 checks for low-income residents and expanded tax credits and grants for businesses that hire workers and grow in the ‘State.
“We are in a much better budgetary position than anyone could have imagined just a few months ago,” the Democratic governor said when he released his proposals on January 8. “We are investing in using the resources of this surplus to help support the most vulnerable Californians.
California’s victory is the product of its progressive income tax structure which relies heavily on high income and capital gains taxes. But Newsom is unwilling to take this any further with proposals some lawmakers are proposing to raise taxes on the wealthy, who continue to do well during the pandemic.
“They are just not part of the conversation,” Newsom said of the measures.
Ten states, including Idaho, Arkansas, and Illinois, even collected more taxes in the first three quarters of 2020 than in the first three quarters of 2019.
Leading Idaho saw its general fund increase 12.2% in September from a year earlier. In his recent state-of-the-state address, Governor Brad Little (R) took advantage of the increase in revenues by offering more than $ 450 million in combined property tax and tax relief on income, which he said would be “the biggest tax cuts in Idaho history.” “
“As other states face potential budget cuts of 20 to 40 percent and more, Idaho is in the enviable position of having a record budget surplus,” Little said.
Arkansas, which also recorded more revenue in the first three quarters, is also poised for big tax cuts.
Its gross revenue grew 6.4% for fiscal 2020 through September compared to the same period in 2019. Six months into its fiscal year Arkansas also beat revenue forecast by over $ 300 million. of dollars, according to Governor Asa Hutchinson (R).
Its budget includes $ 50 million in tax cuts, including relief for new residents, lower sales taxes on affordable vehicles, and general reductions for the working and middle class.
Arizona expects a surplus of $ 352 million at the end of its fiscal year in late June, a stark contrast to the $ 1.1 billion deficit it expected last April.
Not only does Arizona Gov. Doug Ducey (right) promise not to raise taxes, he’s calling for tax cuts to stimulate the economy and attract more residents fleeing high-tax states like California , which saw its first population decline on record last year.
Ducey’s $ 12.6 billion spending plan sees $ 1.2 billion in personal and small business income tax cuts over the next three years, starting with $ 200 million This year.
In some states, high incomes alleviate long-term fiscal problems. Illinois Gov. JB Pritzker said the state’s chronic deficit fell from $ 5.5 billion to $ 3 billion, allowing him to offer to keep spending at the same level and avoid new taxes, but not to offer tax cuts or other relief.
Connecticut also has a surplus of $ 70 million in mid-January instead of the deficit of $ 1.9 billion predicted by the Comptroller in October. Republican Gov. Ned Lamont is not proposing Newsom-style relief measures, but he also does not endorse Democrats’ calls for increased taxes on wealth and capital gains to pay off the government’s own stimulus checks. the state for low incomes.
Lamont’s position would have been much more difficult to hold a few months ago, before the revised earnings forecast was released, Auxier said.
In his February 10 budget speech, Lamont made four references to balancing the state’s finances without increasing taxes. He didn’t mention stimulus checks, however.
All states, regardless of their current tax collections, face a similar fiscal dilemma: As long as the pandemic persists, it will be difficult to predict even the short-term economic impact, said Lucy Dadayan, senior research associate at the Tax Policy Center.
“We have to realize that we are living in a new reality,” Dadayan said, “and there are just too many unknowns.”