States Kick Off 2019 With New Tax Revenue Gains

These data have been updated. For the latest information, visit Fiscal 50: State Trends and Analysis.

State tax revenue ticked up in the first quarter of 2019, recovering partially from a one-quarter decline and returning the number of states in which collections had fully recovered from the Great Recession to a record-high 41, after accounting for inflation. Reports of even stronger growth in the second quarter led many states to cap off the fiscal year with revenue surpluses.

Despite recent ups and downs, state tax revenue at the end of the first quarter of 2019 was at its second-highest level since falling during the 2007-09 recession.  Collections were 13.0 percent above their 2008 peak, just before revenue plunged, and just below a record 13.4 percent recorded in mid-2018, after adjusting for inflation and averaging across four quarters to smooth seasonal fluctuations.  

The results mean that states collectively had the equivalent of 13 cents more in purchasing power for every $1 they collected at their recession-era peak more than a decade earlier. However, the results vary widely from state to state.

Preliminary figures collected by the Urban Institute show tax revenue surged even higher in the second quarter of 2019, which was the end of the fiscal year for most states. Urban attributed a piece of the gains to the largest growth in a decade in collections from April state income tax returns, although it warned the increase may represent one-time money. The unexpected collections left many states with revenue surpluses, which are used for a range of purposes, including to build up reserves, pay down debt, provide tax relief, or make one-time expenditures, according to the National Association of State Budget Officers.        

Some fiscal and economic uncertainties, however, could affect states’ long-term tax revenue trends. Future collections may not be as strong since U.S. economic growth is expected to slow. Stock market volatility, along with a global economic slowdown and the impacts of U.S. trade policies, also threaten to dampen growth.

The 2017 federal Tax Cuts and Jobs Act has been one of the largest points of uncertainty in state collections because the totality of its impacts has yet to be seen as both states and taxpayers continue to adjust to the federal changes. The result is that at least some of states’ recent tax revenue gains could be short-lived. States are therefore grappling with whether to expect current highs to continue or to treat them as one-time gains.

Recent revenue collections have been boosted in part by the 2017 reforms to federal tax law—which cut U.S. income tax rates but increased what many individuals and businesses owed to state tax collectors—as well as by favorable economic conditions, state policy actions, and robust stock market returns in late 2017 through much of 2018.

Many states collected more tax dollars in 2018 and early 2019 in part because of the way their tax codes link to federal tax law, though some states have acted to counteract these gains. The law cut federal tax rates but increased the amount of income subject to taxation, automatically increasing many state taxpayers’ liabilities unless policymakers acted to neutralize the unlegislated state tax hikes. At least eight reduced their tax rates on personal income—the largest source of tax revenue for states—in 2018 to return portions of their windfall to individual taxpayers. Others are still grappling with the full implications of the federal changes on their collections. Further, many states have yet to address changes to corporate income provisions—both domestic and international—whose effects on state tax revenue remain uncertain.  

Just nine states collected less in inflation-adjusted tax dollars than at their peak before collections plunged in the recession. Revenue in these states was still below its recession-era peak for a variety of reasons, including state tax cuts, weak economic growth, volatile energy prices, or an unusually high tax revenue peak before the downturn.  

But even states that have surpassed their recession-era peaks had to deal with years of slow revenue growth before the recent spike, leaving many governments with little extra to cover costs associated with population increases and other fiscal strains, such as growth in Medicaid expenses, deferred spending, and accumulated debts and liabilities.

Total state tax revenue rebounded more slowly after the 2007-09 recession than it did after any of the three previous downturns. But trends have varied widely by state. In 15 of the 41 states in which collections had recovered from their recession losses by the first quarter of 2019, tax revenue—and thus purchasing power—was more than 15 percent higher than at its peak before or during the recession. Conversely, collections were down 15 percent or more in two of the nine states in which tax revenue was still below peak.

As states regain fiscal ground lost in the recession, policymakers face pressure to catch up on investments and spending postponed because of the downturn. That may be more difficult in states where tax revenue remains below its previous peak.

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State highlights

A comparison of tax receipts in the first quarter of 2019 with each state’s peak quarter of revenue before the end of the recession, averaged across four quarters and adjusted for inflation, shows:

  • North Dakota remained the leader among all states in tax revenue growth since the recession, although its collections have swung dramatically along with the price of oil during the same period. At the end of 2014, receipts hit a high of 123.9 percent above their peak during the recession, compared with 69.3 percent above in the first quarter of 2019.
  • Fourteen other states posted tax revenue rebounds of 15 percent or more: Colorado (31.9 percent), Oregon (30.1), Washington (29.9), California (27.3), Nevada (24.9), Minnesota (24.0), Hawaii (23.7), South Dakota (21.6), Maryland (21.0), Illinois (17.9), Tennessee (16.9), Texas (16.7), Massachusetts (16.6), and Delaware (15.2).
  • Alaska (-82.0 percent) was furthest below its peak. This means the state collected only about 18 percent as much in inflation-adjusted tax dollars as it did at its short-lived peak in 2008, when a new state oil tax coincided with record-high crude prices. Without personal income or general sales taxes, Alaska is highly dependent on oil-related severance tax revenue, which began falling even before worldwide crude prices declined in 2014 as its oil production waned.
  • One additional state was down more than 15 percent from its previous peak: Wyoming (-35.2 percent).
  • Other states still below their peaks were Florida (-8.2), Ohio (-7.0), Louisiana (-5.0), New Jersey (-2.3), Missouri (-2.1), Oklahoma (-0.6), and Mississippi (-0.5 percent).

Latest trends

Overall tax revenue grew slightly—by 0.7 percent, after adjusting for inflation—in the first quarter of 2019 compared with a year earlier, reflecting volatility from federal tax reforms and the economy. Although personal income tax collections—the largest source of tax revenue for many states—fell by 4.2 percent, sales tax and corporate income receipts grew by 2.3 and 38.2 percent, respectively, according to data from the Urban Institute. Severance tax revenue also rose, buoyed by near-record levels of U.S. oil production.  

Despite lean growth for the 50 states as a whole, losses were widespread: 23 states had year-over-year declines in total tax revenue—the highest since late 2016—though many states anticipated lower collections because of artificially high returns at the start of 2018. Further, many states project the largest growth in a decade in collections from April state income tax returns, which will likely reverse this quarter’s losses.

Trends since the recession

State tax revenue—like the U.S. economy—has grown slowly and unevenly since the recession. After states’ tax collections bottomed out after the recession, the number of states that have regained their tax revenue levels has risen and fallen, reflecting volatility in state tax collections as well as tax policy changes.

Nationally, tax revenue recovered from its losses in mid-2013, after accounting for inflation. But individual state results have differed dramatically depending on economic conditions, population changes, and tax policy choices since the recession. For example, state policymakers have enacted tax cuts in states such as North Carolina and Ohio and hikes in states such as California and Illinois since the recession. According to the National Association of State Budget Officers, states enacted $3.1 billion in net tax increases for fiscal 2019 following nearly $10 billion in hikes for the previous year. These increases follow much smaller rises in the previous two fiscal years and net tax cuts of roughly $2 billion in each of fiscal years 2014 and 2015.

In 2010, North Dakota was the first state to surpass its recession-era peak, followed by Vermont, Illinois, New York, and West Virginia by mid-2011. Tax receipts were above peak in 15 states at the end of 2012; 22 states at the end of 2013; 22 states at the end of 2014; 30 states at the end of 2015; 31 states at the end of 2016; 33 states at the end of 2017; and 40 states at the end of 2018.

State budgets do not adjust revenue for inflation, so tax revenue totals in states’ documents will appear higher than or closer to pre-recession totals. Without adjusting for inflation, 50-state tax revenue was 33.9 percent above peak and tax collections had recovered in 48 states—all except Alaska and Wyoming­—as of the first quarter of 2019. Unadjusted figures do not take into account changes in the price of goods and services.

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.

Download the data to see individual state trends from the first quarter of 2006 to the first quarter of 2019. Visit The Pew Charitable Trusts’ interactive resource Fiscal 50: State Trends and Analysis to sort and analyze data for other indicators of state fiscal health.

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Fiscal 50: State Trends and Analysis, an interactive resource from The Pew Charitable Trusts, allows you to sort and analyze data on key fiscal, economic, and demographic trends in the 50 states and understand their impact on states’ fiscal health.

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