NCPA - National Center for Policy Analysis

States' Budget Woes Could Raise Taxes

June 26, 2015

State finances across the United States have been described as stable but slow growing. Six years into the post-recession economic recovery, that statement may be accurate, but the full truth may be more troubling.

  • More states have been unable to complete budgets so far this year than is typical, and the situation points to long-term spending problems — from K-12 education to Medicaid and infrastructure — that will persist.
  • Overall, state reserve funds are at 7 percent of spending, but there are 15 states with less than 5 percent in reserve funds for fiscal 2016.
  • Social benefit (Medicaid), consumption (public employees) and investment spending by the states has experienced a sea change, falling 18 percent since the start of the recession, with net investment down by more than 55 percent, according to the Bureau of Economic Analysis. 
  • States that have high reliance on personal income taxes, particularly reliance on taxes on non-wage income (stock gains), are also facing fiscal challenges. (California and Colorado for example).
  • U.S. Census Bureau data shows that spending by state and local government on construction fell by $50 billion at annual rates (16.4 percent) between the fourth quarters of 2007 and 2014.

The Government Accountability Office (GOA) projects the peak in state tax receipts — 2007 — will not occur again until 2058. The GAO estimates that during the 50-year period, states would have to reduce state and local government spending by 18 percent or increase tax revenue by a similar amount — or some combination of the two — to close the fiscal gap.

Source: Eric Rosenbaum, "States' Budget Squeeze Could Mean Higher Taxes for You," The Fiscal Times, June 23, 2015. 


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