Tim Henderson | (TNS) Stateline.org
From healthcare for immigrants in California to universal school vouchers in Tennessee, states are having to reconsider costly projects due to declining tax revenues and the end of federal pandemic aid.
State tax revenue decreased by 4% last year, according to a Stateline analysis of U.S. Census Bureau data released this month. estimates Still, revenue has increased by about 28% since 2019, which is higher than the inflation rate of about 18% during the same period. California and New York saw a significant share of the revenue decline, losing a combined $56 billion in state tax revenue, out of the $66 billion national loss. This decline is greater even when considering their large populations.
California Governor Gavin Newsom, facing a budget deficit, urged lawmakers to make changes to the state budget, including a proposed $1.5 billion tax increase on health insurers in order to sustain the expansion of state health insurance for low-income individuals regardless of immigration status.
Some lawmakers expressed concern about the cost of the expansion, while others highlighted its importance in providing continued support to patients without reducing services. $73 billionThe increased tax would need to be approved by March 21 to receive federal approval. Negotiations are ongoing for other budget changes, potentially including more taxes or billions of dollars in cuts to various areas. Conservative agendas are also facing scrutiny as tax revenues declined in 32 states last year and failed to keep up with inflation in 40 states and the District of Columbia, according to the Stateline analysis. Republican state Rep. Charlie Baum pointed out that the current House version of the voucher plan includes additional funding for rural public schools, staff health insurance subsidies, and construction costs, which he believes the state cannot afford with a $400 million budget deficit.
In New Jersey, where state tax revenue decreased by 4% last year, Democratic Gov. Phil Murphy has requested lawmakers to approve a tax on large businesses to generate about $1 billion this year in order to support the state transit system and potentially preserve a program to lower property taxes for older individuals.
Arizona is facing a projected $1.7 billion budget deficit after implementing a flat income tax last year. Current Democratic Gov. Katie Hobbs is dealing with the consequences of this fiscal situation.
proposing to take back money from road projects and school vouchers
approved under more optimistic predictions. An analysis by Stateline shows that Arizona state tax income decreased by 8%, or about $1.9 billion, compared to 2022, but increased by 26% from 2019.
Cutting taxes during the pandemic may have negative consequences for states like Arizona, impacting their ability to improve things such as schools and housing, according to Wesley Tharpe, senior adviser for state tax policy at the left-leaning Center on Budget and Policy Priorities.
Tharpe stated that more than half of the states used temporary surpluses from the COVID-19 recovery to make permanent reductions in their state income tax. Several states, including Arizona, North Carolina, and West Virginia, have made historic tax cuts. This not only means states might have to reduce services, but also that they are losing out on potential revenue for unmet needs. However, conservatives argue that reducing taxes will ultimately benefit states by returning more money to consumers and attracting high-income workers. Jared Walczak, vice president of state projects at the pro-business The Tax Foundation, stated that most states that cut taxes found ways to provide responsible, sustainable tax relief. He emphasized the significance of tax competition and suggested that dealing with tax-cutting states in the Mountain West may be preferable to dealing with tax-hiking states on the coasts.
also experienced significant decreases in state tax revenue. Some states were impacted by declining oil prices in 2023. Alaska, in particular, suffered the largest percentage decrease in state tax income last year at 50%, or $2.1 billion. However, the state is anticipating a boost this year from higher oil prices, and state tax income is still 32% higher than in 2019. anticipates an increase
in fiscal year 2023 from higher oil prices, and state tax revenues are still 32% higher than in 2019.
Like California, Maryland heavily relies on income tax revenue from high earners and is currently facing
political disputes
about whether to reduce spending or raise taxes due to ongoing disappointments in tax income, resulting in a $500 million deficit in the proposed budget.
Utah and Iowa States became accustomed to having excess revenue, as they were able to cut taxes and increase spending simultaneously, thanks to stimulus funding, a thriving economy, and increased consumer spending that boosted tax collections. As consumers are now cutting back, tax cuts are taking effect, stimulus spending has ended, and some sources of high-income jobs, such as energy and tech, have declined, making decisions tougher.
A concerning trend from late 2023 continuing into this year is the decrease in sales tax revenue as consumers spend less on retail items, according to Lucy Dadayan, principal research associate at the Urban-Brookings Tax Policy Center. “This is worrying,” Dadayan remarked. “November and December were marked by declines in sales tax, indicating that consumers are tightening their spending.” a 2% drop in March sales tax revenue distributed to local governments based on January sales, and Arizona retail sales tax revenue
increased by just 1% in January , the smallest growth in ten years. Maryland is thinking about broadening its sales tax to more services due to a decline in retail. The surprising decrease in sales tax is particularly tough on small towns that rely on it to fund essential services like police and firefighters. Sales tax earnings make up over 43% of the budget for Greenwood, Arkansas, a city of around 9,600 near the Oklahoma border. Sales taxes are about the same so far this year instead of increasing by 4.5% as predicted, according to Finance Director Thomas Marsh.
Greenwood’s sales tax revenue jumped 50% during the pandemic as large stores and restaurants in the nearby city of Fort Smith shut down and residents did their shopping and dining closer to home or online — an
Arkansas state law
required local sales tax for online purchases starting in 2019. City officials expected growth to slow, but they were caught off guard when growth stopped in January and February, which could force a hiring freeze and delay building projects if the situation continues, Marsh said.
Texas reported David Thurman, director of Tennessee’s Budget Analyst Agency and president-elect of the National Association of State Budget Officers, said Tennessee and other states need to take a step back on ambitious programs for a “reset year” while taxes drift back to pre-pandemic growth levels. “We’ve structured the [fiscal] 2025 budget to allow taking care of the normal cost of government but do very little else,” Thurman said. “I think we should all move forward more cautiously until we get a better read on what the new normal will be like.”©2024 States Newsroom. Visit at
stateline.org
. Distributed by Tribune Content Agency, LLC. State tax revenue dropped last year by 4%, according to a Stateline analysis of U.S. Census Bureau estimates released this month. Revenue is still up since 2019 by about 28%, though, higher than the inflation rate of about 18% in that time. required local sales tax for online purchases starting in 2019. City officials expected growth to slow, but they were caught off guard when growth stopped in January and February, which could force a hiring freeze and postpone building projects if the situation continues, Marsh said.
David Thurman, director of Tennessee’s Budget Analyst Agency and president-elect of the National Association of State Budget Officers, said Tennessee and other states need to take a step back on ambitious programs for a “reset year” while taxes drift back to pre-pandemic growth levels.
“We’ve structured the [fiscal] 2025 budget to allow taking care of the normal cost of government but do very little else,” Thurman said. “I think we should all move forward more cautiously until we get a better read on what the new normal will be like.”
©2024 States Newsroom. Visit at stateline.org. Distributed by Tribune Content Agency, LLC.
