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Friday Night Owls: State revenue loss not as bad as expected. But, as with pandemic, worse is coming

Like other states, Texas has seen its tax revenues plummet because of the pandemic-induced recession.

Night Owls, a themed open thread, appears at Daily Kos seven days a week


At the Center on Budget and Policy Priorities, Micheal Leachman and Elizabeth McNichol write—Pandemic’s Impact on State Revenues Less Than Earlier Expected But Still Severe:

The pandemic’s impact on state revenues this spring was smaller than the historical record predicted. Nevertheless, states, localities, tribal nations, and U.S. territories like Puerto Rico still face large shortfalls for this fiscal year and the next in funding schools, health care, and other basic public services. They desperately need more federal aid to avoid more layoffs and other cuts that would further weaken the economy, increase hardship, and worsen racial and class inequities.

State and local revenues have fallen as the pandemic has forced businesses to close or scale back, costing millions of jobs. Sales taxes, a major revenue source for states and, to a lesser extent, localities, have fallen especially sharply. Income taxes — states’ other primary revenue source — are also down, as are revenues from gasoline taxes and other lesser sources. [...]

Fortunately for states, revenues for fiscal year 2020 (which ended in June in most states) came in significantly better than they expected. Our analysis of Census data and state tax collections finds that revenues were about 2 percent below states’ pre-pandemic projections, which translates into total shortfalls of about $22 billion. That’s much lower than seemed likely earlier this year when unemployment rates were rising very rapidly and leading economic forecasters were projecting rates to hit Depression-era levels. It’s also much less than the historical relationship between unemployment and state revenues, mainly because this recession has been concentrated among lower-income workers (who pay less in taxes) and because federal aid, like expanded unemployment benefits, boosted workers’ income and purchasing power in the pandemic’s early months.

Much of that federal aid, though, is now expired or spent, and states still face considerably lower revenues, with unemployment high and business activity still down. In the last couple of months, states have grown modestly more optimistic about the current fiscal year but remain pessimistic about next year. States’ adjusted estimates suggest that, in the absence of further federal support, shortfalls will total about 11 percent of their budgets in fiscal year 2021 and 10 percent in 2022, which begins next July in most states. Plus, states face increased costs due to higher enrollment in Medicaid and other programs. Including these higher costs, states’ own estimates suggest shortfalls through fiscal year 2022 that total about $305 billion.

Those estimates could easily prove too optimistic. [...]

THREE OTHER ARTICLES WORTH READING

  • Prisoners of the Wrong Dilemma: Why Distributive Conflict, Not Collective Action, Characterizes the Politics of Climate Change, BY Michaël Aklin and Matto Mildenberger. “Climate change policy is generally modeled as a global collective action problem structured by free-riding concerns. Drawing on quantitative data, archival work, and elite interviews, we review empirical support for this model and find that the evidence for its claimsis weak relative to the theory’s pervasive influence. We find, first, that the strongest collective action claims appear empirically unsubstantiated in many important climate politics cases.”
  • Climate Literacy Is Essential for Effective Change, by Sarah Lazarovic. We need to make it easier to understand basic climate science and emissions reductions.
  • COVID-19 Is Killing My People—And No One Seems to Care, by Carlos Sanchez. It almost killed the author. A story of criminal neglect and mass death in South Texas.

QUOTATION

“We are just an advanced breed of monkeys on a minor planet of a very average star. But we can understand the universe. That makes us something very special.” ~~Stephen Hawking (1988)

TWEET OF THE DAY

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BLAST FROM THE PAST

At Daily Kos on this date in 2009—On the difficulty of keeping ducks in a row:

Why has it historically been so tough to keep House progressives standing strong and using the leverage of their voting bloc to extract concessions on important legislation the way Blue Dogs have been able to?

Part of the reason is that progressive elected officials occupy a portion of the political spectrum that generally leaves them insulated from most accountability to progressive voters. In other words, they're protected to some degree by the "where else are they gonna go?" factor.

That's why progressive grassroots activists have come to expect their elected officials to eventually and in most every case, end up making the "best deal we could get" argument in support of their ultimate abandonment of principles clearly stated in the earlier stages of the process. 

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