State Finances

Tax collections have fallen in almost every state due to the COVID-19 pandemic. The damage has not been as severe as initially predicted last spring, when some feared that states would face their worst financial straits since the Great Depression. A rising stock market and high-income earners' ability to work remotely have mitigated the cash crunch. Still, states that rely on industries such as tourism and oil extraction have been hit hard, and unemployment remains elevated in most states, creating greater demand for public services. States also face unexpected, pandemic-related expenses, such as vaccine distribution. President Biden wants to send aid to states and localities, but many congressional Republicans are opposed. Raising taxes is politically unpopular, so states will be forced to trim spending on programs such as education or social services. Cuts in those areas slowed the economic recovery after the 2007-09 recession. For now, states' financial fortunes depend on forces beyond their control, including the debate over federal aid and the ongoing consequences of the pandemic.