States Posted Healthy Tax Gains in First Half of Budget Year

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States Posted Healthy Tax Gains in First Half of Budget Year

Note: This data has been updated. To see the most recent data and analysis, visit Fiscal 50.

Tax revenue in the vast majority of states grew in the third and fourth quarters of 2019, bolstering states’ coffers before their economies and finances were battered by the coronavirus pandemic. Tax dollars collected during this period, the first half of the budget year for most states, will help states offset annual budget gaps expected as a result of the public health emergency.

As the United States surpassed its longest economic recovery on record, total state tax revenue at the end of the third quarter of 2019 was at its highest level since just before falling during the 2007-09 recession. Collections were 17.1% above their 2008 peak, just before revenue plunged, after adjusting for inflation and averaging across four quarters to smooth seasonal fluctuations. Inflation-adjusted tax revenue was higher in 44 states than it was more than 10 years ago.

Receipts continued to grow in the fourth quarter of 2019—and at least through February—based on the latest available estimates from the Urban Institute.

Since the 2007-09 recession, the size and speed of each state’s tax revenue recovery has varied widely, shaping how quickly each could catch up on investments and spending that had been cut or deferred during the downturn. Among the 44 states that had surpassed their recession-era peaks by 2019’s third quarter, their recovery ranged from as much as 69.9% higher tax revenue to less than 1%, and took from as little as one year to achieve to nearly 12 years.

After lagging for much of the economic recovery, sales tax collections spiked in the third quarter of 2019, compared with a year earlier. The increase came as a surge of states for the first time began collecting online sales taxes from certain businesses.

Looming over future collections is the acute economic fallout from the global coronavirus outbreak, which has triggered widespread shutdowns and unprecedented unemployment claims that threaten to drastically reduce sales and income taxes that states rely on for more than half of their tax revenue.

As of the third quarter of 2019, just six states collected less in inflation-adjusted tax dollars than at their peak before collections plunged in the 2007-09 recession: Alaska, Florida, Louisiana, New Mexico, Ohio, and Wyoming. 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 surpassed their recession-era peaks have had to deal with years of slow revenue growth before a surge in fiscal 2017 and 2018. Meanwhile, spending demands have not stood still. For example, Medicaid enrollment rose by 59% from 2008 to 2018, according to data from the Medicaid and CHIP Payment and Access Commission. Population increases and other fiscal strains, such as accumulated debts and liabilities, have also squeezed state finances.

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State highlights

A comparison of tax receipts in the third quarter of 2019 with each state’s peak quarter of revenue before the end of the 2007-09 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% above their peak during the recession, compared with 69.9% above peak in the third quarter of 2019.
  • Eighteen other states posted tax revenue rebounds of 15% or more since the last recession: Oregon (39.6%), Colorado (36.1%), Washington (35.1%), California (34%), Minnesota (30.1%), Hawaii (28.7%), Nevada (27.6%), Maryland (25.4%), South Dakota (22.5%), Illinois (21.5%), Massachusetts (21%), Tennessee (19.8%), Delaware (19.4%), Texas (18.1%), Kansas (17.9%), New York (17.6%), Nebraska (15.7%), and Vermont (15.7%).
  • Alaska (-85.1%) was furthest below its peak. This means the state collected only about 14.9% 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% from its previous peak: Wyoming (-29.7%).
  • Other states still below their peaks were Florida (-6.1%), Ohio (-4.4%), Louisiana (-2.7%), and New Mexico (-1%).

Latest trends

Overall state tax revenue grew 3.8% in the third quarter of 2019 (July–September) compared with the same period a year earlier, after adjusting for inflation.

Total receipts for the fourth quarter (October–December)—plus at least through February—continued to grow, according to preliminary figures collected by the Urban Institute.

In the third quarter of 2019, sales tax receipts climbed to their highest level since at least 2015 and drove 50-state collections for the first time in three years, while personal income taxes—the primary tax revenue source for states collectively—were sluggish compared with recent periods. Sales tax collections spiked 5.3% from the same quarter a year earlier as new rules governing online sales in 10 states became effective. As of September 2019, the period of study for this analysis, 37 of the 45 states with sales taxes had enacted and implemented laws to exploit online sales. In contrast, personal income tax revenue grew by 2.6%, after adjusting for inflation—one of the slowest rates since late 2017.

Two recent landmark policy actions—the U.S. Supreme Court’s 2018 decision that paved the way for states to collect online sales taxes, and the 2017 federal Tax Cuts and Jobs Act—have bolstered state tax collections, as have favorable economic conditions and robust stock market returns through 2019.

Just five states bucked the national trend and took in less tax revenue in 2019’s third quarter: Alaska, Georgia, Kentucky, New Hampshire, and North Dakota. Drops in corporate income tax collections drove quarterly declines in Kentucky, New Hampshire, and North Dakota, while drops in personal income and severance tax collections drove declines in Georgia and Alaska, respectively. In contrast, Washington and California recorded growth of 9.5% and 9.4%, respectively, from the same quarter a year earlier—more than double the 50-state trend.

Similarly, a majority of states reported higher tax collections in the fourth quarter. Only six reported taking in less tax revenue compared with the same period a year before, according to preliminary estimates from the Urban Institute: Alaska, Connecticut, Louisiana, New Hampshire, Vermont, and West Virginia.

Trends since the recession

State tax revenue growth has been slow and uneven since the 2007-09 recession. After states’ tax collections bottomed out after the downturn, the number of states to fully regain their tax revenue levels has risen and fallen, reflecting volatility in state tax collections based on varying economic conditions and tax policy choices.

Nationally, tax revenue recovered in mid-2013 from its losses, after accounting for inflation. But individual state results have differed dramatically depending on economic performance, 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. States collectively enacted the fifth straight year of net tax increases in fiscal 2020, according to data from the National Association of State Budget Officers. These hikes ranged from nearly $10 billion in fiscal 2018 to $545 million in fiscal 2016.

Recovery times varied widely among the 44 states that had surpassed their recession-era peaks as of the third quarter of 2019. North Dakota was the first state to surpass its recession-era peak, in 2010—after just five quarters (1.25 years)—while Michigan and Virginia each took 46 quarters (11.5 years) to recover their tax revenue losses from the downturn. States that tracked closely with the national trend of 18 quarters (4.5 years) include Connecticut, Hawaii, Iowa, Massachusetts, and Wisconsin.

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 39.6% above peak, and tax collections had recovered in 48 states—all except Alaska and Wyoming—as of the third 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 third 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.