By Toby Burke
The economic slowdown from the COVID-19 pandemic initially raised concerns within states that general revenue collections would be lower than anticipated and, as a result, create shortfalls in maintaining a balanced budget. Although revenue collections from specific sectors of the economy, such as hospitality and tourism, were lower, overall revenue shortfalls from the pandemic did not materialize in most states. Partially bolstered by e-commerce and the collection of state sales tax from internet transactions, revenue collections increased, producing budget surpluses. These surpluses provided an opportunity for states to enact various tax relief measures.
To put it in perspective, the Fiscal Survey of the States, spring 2022 version, from the National Association of State Budget Officers (NASBO), indicates that general revenue collections have increased in 49 states for the fiscal year 2022. The estimated 3.2% growth in revenue collections for the fiscal year is projected to be followed by a more nominal growth of 1.4% for the fiscal year 2023.
Midway through the fiscal year 2022, the National Conference of State Legislatures (NCSL) also reported that revenue collections remained strong and surpassed expectations based on personal income taxes, sales taxes, and other revenue sources. These budget surpluses from more vital than anticipated revenue collections have spurred state legislatures to debate and pass legislation that reduces taxes and provides economic incentives and other tax credit measures within their budgets for the fiscal year 2023. The Georgia General Assembly, for example, passed HB 1437 this year, which replaces the state’s graduated income tax – the top level of 5.99% – with a flat tax starting at 5.49% that will gradually reduce to 4.99% by 2029.
An overview by the Tax Foundation of tax reform measures within the states included: