By Marc Joffe
A recent update of the Census Bureau’s Quarterly Summary of State and Local Tax Revenue provides full-year comparisons of revenue performance between the calendar year 2019 and 2020. The conclusion, consistent with our previously reported data, is that overall state and local tax revenues were not heavily impacted by the COVID-19 pandemic.
Without seasonal adjustments, the Census Bureau estimates 2020 aggregate state and local tax revenues of $1.62 trillion, or about 2 percent above the 2019 total of $1.59 trillion.
The Census Bureau also provides an aggregate state-only tax revenue estimate. State tax revenue was down about 1 percent in 2020: from $1.01 trillion in 2020 versus $1.11 trillion in 2019. In this case, increases in personal and corporate income tax receipts mostly offset a drop in sales tax revenue during the pandemic.
Results from the two series imply a slight increase in local government revenue, likely due to increased property tax receipts amid the strong residential property market.
The Census Bureau does not provide a specific local government-only tax revenue series.
More detailed Census revenue data (displayed in the below map) show that tax revenue performance varied greatly across states. Alaska and North Dakota, for example, suffered the two largest tax revenue drops due to lower energy prices. It is worth noting that these two states have accumulated large cash reserves that allow them to absorb the effects of price shocks. Also, energy prices have been rebounding in early 2021, suggesting that the revenue loss could be transient.
State Government Revenue Growth From 2019 to 2020
The only other state suffering a double-digit percentage revenue decline was Hawaii, which saw an understandably dramatic falloff in tourists and the tax revenues they generate. Nevada, another tourism-dependent state, ended the year down less than 3 percent.
Idaho registered the biggest increase in tax revenue from 2019 to 2020, gaining over 12 percent in 2020. Some of this increase is likely to stem from people temporarily, or permanently, relocating to the state in search of greater distancing than is possible in urban areas and/or in search of less onerous lockdowns than ones imposed by some states, including those on West Coast.
Despite out-migration and strong shelter-in-place restrictions, California registered a small revenue increase due to strong income tax collections. Many of California’s white-collar tech workers were able to work from and many businesses in the tech industry are thriving during the pandemic.
In the aggregate, the increase in state and local tax revenue further undermines the case for the large state and local aid package included in the most recent stimulus and relief bill, the American Rescue Plan Act, signed by President Biden in mid-March.
When it is over and taxpayers and lawmakers look back at the COVID-19 pandemic, it will be clear that states and local governments did not need a huge federal bailout in 2021.
While we’re continuing to see claims and headlines, such as, “With Federal Aid, Washington State Revenue Returns to Normal,” the fact is that state and local government revenues weathered the pandemic and have now received a large federal-taxpayer-funded windfall.
Originally published by the Reason Foundation. Republished with permission.
