The Center's work on 'States in the Recession' Issues

The Top 5 (Okay, 6) State Tax Charts

April 14, 2014 at 1:51 pm

As we approach Tax Day, here are six charts focusing on state taxes.

More than half of state tax dollars go to fund education (K-12 and higher education) and health care, as the chart below shows.  State tax dollars also fund other critical services such as transportation, corrections, public assistance, care for residents with disabilities, police, state parks, and general aid to local governments.

State revenue losses from the Great Recession were both deeper and longer lasting than in previous recessions, as the chart below shows.  Not until the end of 2013 did revenues finally return to pre-recession (2007) levels, after adjusting for inflation.  But, the steady revenue increases of recent years offer states an opportunity to reinvest in education and other services that sustained unprecedented cuts during the recession.

While revenues have slowly recovered in most states, Kansas has moved in the opposite direction, as the chart below shows.  Kansas slashed income taxes, especially for businesses and wealthy Kansans, even as needs — like the number of K-12 students — have grown.  Revenues fell by more than 9 percent in Kansas in 2013.  Meanwhile, there is no evidence that the tax cuts have boosted the Kansas economy.

Five of the seven states that have made the deepest cuts to K-12 education since the beginning of the recession have also enacted major income tax cuts, as the chart below shows.  These tax cuts eliminated revenue that could have helped states reverse the deep funding cuts from the recession and invest in promising education reforms.

As the chart below shows, low-income families pay significantly more of their income in state and local taxes than very wealthy families.  State and local taxes push many families into — or deeper into — poverty.

A state Earned Income Tax Credit (EITC) is one powerful tool to prevent state and local taxes from pushing low-income working families deeper into poverty.  Twenty-five states and Washington, DC, have their own EITCs, as the map below shows.  A state credit builds on the federal EITC’s proven effectiveness in helping low-income working families make ends meet.  States looking to encourage work and reduce poverty, especially among children (the federal EITC lifts more children out of poverty than any other program), should considering enacting or expanding an EITC.

States’ Sluggish Recovery Continues

April 4, 2014 at 3:06 pm

State tax collections have finally reached their pre-recession levels, according to new data from the Census Bureau.  Those collections are now 0.4 percent higher than six years ago, after adjusting for inflation.  This news is welcome, but not cause for celebration.

The recession of 2007-09 caused deep, sustained and unprecedented revenue losses. Revenue fell a record 12 percent in the average state, even deeper in states with the hardest-hit economy.  And the recovery has been the slowest in decades (see graph).

These drastic revenue losses have prompted many states to make serious cuts to K-12 education, public colleges and universities, libraries, human services, and other public services.  The sluggish recovery means that states are serving larger populations, including more school kids and more seniors, with the same amount of money as six years ago.

Several States Considering Doing More for Working Families

February 11, 2014 at 3:56 pm

A number of states are considering creating or expanding earned income tax credits (EITCs), Pew Stateline explains, an idea that has received support from both sides of the aisle.  That’s great news for low- and moderate-income working families.  It’s also good for the nation’s future economic prospects since state credits leverage the federal EITC’s well-documented, long-term positive effects on children.  As our recent paper explains, state EITCs:

  • Help working families make ends meet.  Refundable EITCs provide low-income workers with a needed income boost that can help them meet basic needs and pay for the very things that allow them to work, like child care and transportation.
  • Keep families working.  EITCs help families that work get by on low wages, which helps them stay employed.  They are also structured to encourage the lowest earning families to work more hours. That extra time and experience in the working world translates into better opportunities and higher pay over time. Three out of five who receive the credit use it just temporarily — for just one or two years at a time — while they get on their feet.
  • Reduce poverty, especially among children.  Millions of children in working families live in poverty, and millions of families with incomes modestly above the poverty line have difficulty affording food, housing, and other necessities.  The federal EITC is the single most effective tool the nation has for reducing poverty among working families and children.  It now lifts about 6.5 million people — half of them children — out of poverty each year.  State EITCs build on that record.
  • Have a lasting effect.  Low-income children in families that get additional income through programs like the EITC do better and go farther in school.  And children in low-income families that get an income boost during their early childhood years work more and earn more as adults.  This is good for communities and the economy because it means more people and families on solid ground and fewer in need of help over the long haul.

That’s why twenty-five states plus Washington, D.C. have EITCs (see map).  Last year, Colorado and Ohio created EITCs while Oregon and Iowa improved theirs.  As a slowly improving economy boosts the fiscal outlook for states, lawmakers should follow suit and adopt or expand EITCs to help working families and children recover, too.

Jobs Report Shows More Local School Job Losses

February 7, 2014 at 1:38 pm

Local school districts have cut hundreds of thousands of positions over the past few years and the trend is continuing, today’s jobs report shows.  Though job losses have slowed in the past two years, local governments shed 9,000 education jobs in January and have cut 40,000 jobs since the start of the school year.

School districts have eliminated over 350,000 jobs since mid-2008 (see graph), including teachers, administrators, and crucial support staff like guidance counselors, librarians, social workers, nurses, and janitors.

While school workforces shrink, enrollment continues to grow, by 800,000 students since 2008.

With fewer staff and resources and more students, overburdened schools will find it much more difficult to provide students with a quality education.

Caution Is the Right Approach to State “Surpluses”

January 22, 2014 at 9:55 am

Wisconsin’s Governor Scott Walker and New York’s Governor Andrew Cuomo, as well as leading lawmakers in Michigan and elsewhere, are using their state’s budget “surplus” to justify new tax cuts.  That’s highly imprudent, if not irresponsible.

State budget surpluses typically appear when the economy emerges from recession.  After a few years of weaker-than-expected revenues, states wisely tend to estimate revenue cautiously for the coming year.  If their estimates prove too cautious — for example, because the stock market does better than expected, raising people’s incomes and thus their tax payments — that produces a “surplus.”

Some governors and legislators love these surpluses because they seem like free money that policymakers can use as they please — like spend on tax cuts.  But that approach ignores three key facts:

First, a surplus means the state has more money than it expected, not necessarily more money than it needs.  Having experienced the worst recession since the Great Depression, states’ needs remain high.

Most states — including Michigan, New York, and Wisconsin — provide less general support for their schools per student than they did when the recession hit, often far less. Wisconsin has cut school funding especially deeply (by 15 percent), making Governor Walker’s call for tax cuts particularly rash (see graph).

Second, recovery from the Great Recession remains fragile, as December’s unexpectedly weak jobs report showed.  And who knows how the stock market will perform in 2014? After growing by 20 percent over the last year, it could take a tumble.  If the economy slows and the stock market slips, states surpluses will disappear.

Third, tax cuts are a lousy way to grow a state’s economy.  They do little or nothing to create jobs, and money spent on tax cuts can’t be used to improve schools, strengthen early education, repair infrastructure, or make other proven investments in a state’s economic future.

Other states with surpluses are taking a more responsible approach.  California’s Governor Jerry Brown, for example, is calling for putting much of the money into paying off state debt and building up reserves.  This approach still leaves many state needs unaddressed, but it’s wiser than the approach that policymakers in Wisconsin, New York, and Michigan are considering.