In case you hadn’t heard, states are experiencing a surge—of tax revenue. Politicians don’t want this good news to get out because they want more money from Congress.
California recently reported that tax revenue for this fiscal year is running $9.9 billion (18.6%) above projections. Personal income tax revenue in October was $1 billion (15.6%) higher than in the previous October, and sales taxes were up 9.2%. For the last four months, overall revenue has exceeded spring forecasts and even 2019 collections.
Behold how a rising stock market lifts progressive state budgets. The top 1% of earners in California generate half of its personal income tax revenue. A rebounding stock market—the Dow Jones Industrial Average has increased 16% since the beginning of July—has produced a gusher of revenue for blue states with sharply progressive tax systems.
In New York, overall tax revenue was up 4.3% in September compared to September 2019 thanks to soaring personal income tax revenue. Most of this bump appears due to an increase in withholdings from larger unemployment checks.
Like many states, New York taxes unemployment benefits. Because the federal $600 in weekly enhanced jobless benefits more than offset wage losses for most unemployed workers, many states have been collecting more income tax revenue from workers who are unemployed than from lower-income folks who are working. After enhanced benefits lapsed in October, income tax revenues in New York dipped though were still only 1.8% lower than last year.
Personal income tax revenue in Connecticut increased 2.9% in September from the previous year. In the fiscal year that started in July, income tax receipts are running 0.3% ahead of last year and sales tax revenue is up 5.3%.
Sales tax revenue in most states hasn’t fallen as much as expected because many Americans haven’t reduced spending. They are spending on different things. They are buying more appliances to remodel their homes while spending less on personal services like hair cuts and dry-cleaning, which most states don’t tax.
Despite the wailing by Democratic governors, budgets in states run by Republicans have been hit harder by the pandemic because they rely less on income taxes from the wealthy, which have been buoyant. Tax collections in Texas were down 8.25% in September and October from the previous year due mainly to lower oil and gas revenues. But Gov. Greg Abbott isn’t begging for a federal bailout.
Most states will survive the pandemic fine without more federal aid if they don’t reimpose lockdowns as Oregon, Michigan and New Mexico have, though some have pre-existing problems that Democrats want Congress to relieve. Most blue-state budget bruises are self-inflicted.
—The Wall Street Journal