Analysis

State Tax Revenue Hits New Peak

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For the first time, total state tax revenue appears to have recovered from its plunge in the Great Recession. Receipts for the 50 states combined were 0.5 percent higher in the second quarter of 2013 than at their collective peak in 2008 after adjusting for inflation. But recovery was uneven; only 20 states were above peak.

For every $1 that states collected at their tax revenue peak in the third quarter of 2008, they took in $1.05 in the second quarter of 2013, after adjusting for inflation and seasonal fluctuations. That is up from 98.4 cents in the prior quarter and amounts to the first increase in purchasing power from overall state tax dollars in nearly five years.

Based on the latest preliminary figures, the results represent a milestone but fall short of erasing the recession’s effects.

States Where Tax Revenue Has Recovered

StatePercent above peak, 2Q 2013
North Dakota91.0%
Illinois20.3%
Minnesota15.6%
New York9.7%
Iowa8.8%
Texas7.3%
Colorado6.9%
Hawaii6.0%
Vermont5.8%
Arkansas5.1%
South Dakota4.3%
Delaware3.0%
Nebraska3.0%
Connecticut2.4%
Wisconsin2.4%
Oregon1.6%
West Virginia1.2%
Tennessee1.0%
California0.8%
Nevada0.7%

Source: Pew analysis of the U.S. Census Bureau’s Quarterly Summary of State and Local Taxes, as adjusted by the Nelson A. Rockefeller Institute of Government.

In 30 states, tax collections still were below their own peak levels. In 11 of those, receipts were lower by 10 percent or more. The difference between current and peak quarterly tax revenue—based on four-quarter moving averages—is a gauge of the financial stress still burdening state budgets after the recession.

Even if states return to their previous peaks, it does not necessarily signal an economic comeback. Growth can result from tax increases or other policy changes. In recent quarters, total tax revenue was boosted by some one-time receipts, including money from taxpayers who accelerated income to avoid a federal tax hike. A return to peak levels still can leave states with little extra to make up for cuts in federal aid or to pay for costs associated with population increases, growth in Medicaid enrollment, deferred needs, and accumulated debts. 

As of the second quarter of 2013, which is the end of the fiscal year for most states:

  • North Dakota’s tax revenue was 91 percent above its highest point during the recession, thanks to an oil boom that sent severance and sales taxes soaring.  
  • Alaska was the state furthest from its peak, down more than 51 percent. Its 2008 high point was the short-lived result of a major state oil tax increase that took effect just as crude prices spiked to an all-time high. The next-largest gaps between current and peak tax revenue were in Wyoming (-26.9 percent), Florida (-21.1 percent), and New Mexico (-20.7 percent).
  • Five states’ tax revenue rose above peak for the first time, after accounting for inflation: California, Connecticut, Nebraska, Nevada, and Oregon.
  • Two states accounted for more than half of the increase that drove total tax revenue above peak in the quarter: California (39.5 percent) and New York (12.4 percent).

Download the data.

Without adjusting for inflation, quarterly state tax revenue was 7.7 percent above peak overall and had recovered in 35 states. These figures do not account for other factors affecting states’ budgets, however.

Adjusting for inflation is just one way to evaluate state tax revenue growth. Different insights would be gained by tracking revenue relative to population growth or state economic output.  

 Analysis by Barb Rosewicz and Alex Boucher

Read the previous analysis.

Date:
February 21, 2014
Contact:
Sarah Leiseca | 202.540.6369
Project:
States' Fiscal Health
Issues:
Taxes
 
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