Although revenue conditions appear to be stabilizing after a period of pandemic-induced volatility, collections have remained sluggish, having performed below their long-term trends — both nationally and in most states — for five straight quarters. At the same time, growing uncertainty over federal policy changes is exacerbating fiscal risks and complicating budget planning for states.
Nationally, state tax revenue was 3.2 percent below its 15-year trend by the end of the fourth quarter of 2024, after adjusting for inflation and smoothing for seasonal fluctuations. This marks a sharp contrast from early 2022 when collections were 14.9 percent above trend—the highest in at least 15 years.
The number of states underperforming their 15-year trajectories has grown steadily over the past two years as collections stagnated after the unexpectedly high levels reached during the second and third budget years of the COVID-19 pandemic.
At the end of 2022, only one state had tax revenue below its 15-year trend. But by the end of 2023, that number had jumped to 27; by the end of 2024, it had reached 40.
Although the scale of these declines resembles past recessions, this slowdown is happening outside of a national recession. Instead, the decreases have been driven largely by the waning of temporary pandemic factors and the implementation of widespread state tax cuts.
But despite underperforming long-term trends, state tax revenue is showing signs of stabilization. Most states experienced more moderate annual declines in fiscal 2024 compared with the year prior, reflecting a return to growth rates more aligned with historical norms after four years of extreme fluctuations. Then, in the third and fourth quarters of 2024, state collections were largely flat.
Fortunately, most states anticipated the decline from pandemic-era highs and were able to maintain relatively strong fiscal positions as they entered 2025. But the continued stagnation is making budgeting more difficult and fiscal commitments — such as broad-based tax cuts and across-the-board wage increases for public employees — made in the previous environment of abundant resources are now posing challenges as revenues flatten. States now face a higher-than-normal risk of structural deficits, where recurring revenue is insufficient to support recurring expenditures.
Recent federal actions are adding to this fiscal uncertainty. During the early months of President Donald Trump’s second term, a wave of executive actions and policy shifts has raised new concerns for state leaders about the stability of their second-largest revenue source: federal funding. Proposed and enacted efforts—such as a sharp rise in tariffs, shifts in immigration policy, large-scale reductions to the federal workforce and changes to tax policy—could further disrupt state budgets.
Some Positive Signs
Although collections continue to lag long-term trends, state tax revenue has shown some positive signs. Tax revenue rose in half of the states during the first six months of fiscal 2025, an improvement from the same period a year before, when more than four-fifths of states experienced declines. The gains would probably have been stronger and more widespread if not for intentional reductions from newly enacted state tax cuts. Additionally, collections have recently been more closely aligned with states’ annual revenue forecasts than they were amid the volatility of fiscal years 2022 and 2023.
Revenue trends continue to vary widely across the states. During the first half of fiscal 2025, collections ranged from a 10.2 percent increase in Minnesota and 9.6 percent increases in Hawaii and Vermont to declines of 19 percent, 9.4 percent and 8.4 percent in Nebraska, North Dakota, and Wyoming, respectively, versus the same period in the prior year.
A comparison of tax revenue in the fourth quarter of 2024 versus each state’s 15-year trend levels, adjusted for inflation and seasonality, shows that:
- The states with the weakest tax revenue compared with their long-term trends were Oregon (19.3 percent below trend), Nebraska (10.5 percent below), and Iowa (9.2 percent below). Oregon’s deviation can be explained, in part, by its "kicker” rebate, which returned $5.6 billion in surplus fiscal 2023 funds to taxpayers. Iowa and Nebraska both recently implemented significant tax cuts which lowered collections.
- Ten states bucked the national trend and remained above their 15-year trajectories: Alaska (163.1 percent above trend), New Mexico (10.6 percent), Wyoming (5.9 percent), South Carolina (5 percent), Vermont (1.3 percent), Rhode Island (1.2 percent), Hawaii (0.4 percent), Nevada (0.2 percent), Maine (0.1 percent), and Texas (0.01 percent). Alaska, New Mexico, and Wyoming benefited from a boost in severance tax revenue related to elevated energy prices and production, though their collections have declined in recent quarters from relatively high baselines.
- The number of states performing below their long-term revenue trends rose from 38 in the second quarter of 2024 to 40 in the fourth quarter of that year, with five states falling below trend during the second quarter (Alabama, Florida, Illinois, Montana, and Nebraska) and three (Hawaii, Maine, and Vermont) climbing back above their long-term trajectories.
Trends by Tax Type
Nationally, approximately 75 percent of total state tax revenue comes via levies on personal income, general sales of goods and services and corporate income. During the fourth quarter of 2024, corporate income taxes outperformed their 15-year growth trends, while general sales taxes and personal income taxes fell short.
For the 44 states that impose a personal income tax, those collections were 11 percent, or $15.9 billion, below their 15-year trend as of the fourth quarter of 2024, after adjusting for inflation and seasonality.
Of the 41 states that collect broad-based personal income taxes, 37 had collections that underperformed long-term trends, ranging from 44 percent below trend in Nebraska and 34.7 percent below in Oregon to less than 1 percent below in Louisiana.
Personal income tax revenue outperformed its long-term trend in Oklahoma (1.2 percent), Massachusetts (1.0 percent), Maine (0.9 percent), and Delaware (0.1 percent).
Corporate income tax collections were 8.0 percent, or $2.7 billion, above their 15-year trend as of the fourth quarter of 2024. Historically, corporate income taxes are more volatile than other major state taxes. Of the 46 states that impose this tax type, 29 had collections that outperformed long-term trends, ranging from 239.8 percent above trend in Alaska to 3.8 percent above in Missouri.
Corporate income tax revenue underperformed its long-term trend in 17 states, ranging from 33.2 percent below trend in Mississippi and 32.7 percent below trend in Indiana to 2.5 percent below in Wisconsin and 1.8 percent below in Minnesota.
General sales tax collections were 1.9 percent, or $2.2 billion, below their 15-year trend as of the fourth quarter of 2024. Of the 45 states that impose this tax type, 16 had collections that outperformed long-term trends, ranging from 5.1 percent above trend in Wyoming to 0.2 percent above in New York, Utah, and Mississippi.
General sales tax revenue underperformed its long-term trend in 29 states, ranging from 8.8 percent below trend in Nevada to 0.2 percent below in Connecticut.
Justin Theal is a senior officer and Alexandre Fall is a senior associate with The Pew Charitable Trusts’ Fiscal 50 project.
A version of this article was published by Pew. Read the original here.
