State Tax Revenues Continue to Grow

Another strong showing for state tax revenue in the third quarter of 2018 meant that all but five states saw a rise in those revenues, according to figures from the Pew Charitable Trusts. Furthermore, the strong quarter implies that 41 states have now seen their tax collections recover to their pre-recession inflation-adjusted peaks. That figure of 41 states is up from the 34 states that had fully recovered their tax revenue when we last examined this topic.

A couple of the reasons cited for the strong tax revenue growth include the 2017 federal Tax Cuts and Jobs Act, and generally positive economic conditions. Due to the fact that many states’ tax codes are directly linked to the federal code, the changes to the federal tax code meant that many people and businesses automatically owed more in taxes to their respective states. The strong overall national economy translated to increased consumer spending and thus increased sales tax revenue for the states.

As usual when seeing good news like this for state coffers, it is important to temper excitement and remain mindful of broader trends. For instance, the nature of the changes to the federal tax code in the Tax Cut and Jobs Act means that many of the gains in state tax revenue realized due to the new law were likely temporary and growth will be softer going forward. Additionally, while a strong national economy has contributed to the prolonged spell revenue growth, many experts continue to predict a global economic slowdown in the near future.

So, while the current picture is relatively rosy for state tax revenues, the cyclical nature of the economy means that sound fiscal policy is always important. One tool to maximize budget efficiencies is by partnering with a trusted government debt collection partner.

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