Connecticut and New York are two of 13 states whose tax revenue in mid-2018 was more than 15 percent higher than at its peak before or during the 2007-09 recession – news that is at odds with the usual negative perception of the state’s economic health.
A new report by Pew Charitable Trusts provides a comparison of tax receipts in the second quarter of 2018 with each state’s peak quarter of revenue before the end of the recession, averaged across four quarters and adjusted for inflation. The data shows that Connecticut posted a tax revenue rebound of 16.3 percent during the period. New York had 18.2 percent.
Eleven other states posted tax revenue rebounds of 15 percent or more: North Dakota (47.9 percent), Colorado (32.2 percent), California (27.6 percent), Oregon (26.8 percent), Minnesota (25.5 percent), Hawaii (23.6 percent), Washington (22.8 percent), Nevada (22.5 percent), South Dakota (20.8 percent), Maryland (18.8 percent and Illinois (15.5 percent).
At the other end of the scale was Alaska, which was down 86.3 percent from its peak.
As of the second quarter of 2018, tax collections in 36 states were higher than before receipts declined during the downturn, after accounting for inflation.
Pew said the results mean that states collectively had the equivalent of 12.2 cents more in buying power in the second quarter of 2018 for every $1 they collected at their recession-era peak, after adjusting for inflation and averaging across four quarters to smooth seasonal fluctuations.
Credit for the positive news was allotted to favorable economic conditions, strong stock market returns in 2017 and the first half of 2018 and state policy actions. At least a portion of the growth also was also due to short-lived effects on state tax revenue from the federal Tax Cuts and Jobs Act, the organization said.
Besides cutting federal tax rates, that 2017 law included revisions to tax exemptions, deductions and credits that broadened the income subject to taxation federally and in many states. As a result, many states saw an automatic increase in tax dollars due to interrelationships between federal and state income tax codes.
At least a dozen states altered their tax laws in 2018 to return portions of the windfall to taxpayers and more were expected to consider rolling back some of the gains, Pew noted.
The federal changes also incentivized taxpayers to try to lower their federal tax bills by shifting the timing of certain income and payments in ways that resulted in another temporary inflation of state tax collections. Gains in some states also came from a deadline for hedge fund managers to pay taxes on offshore earnings by the end of 2017.