State tax revenues saw large swings since the onset of the pandemic, in part because of government actions and behavioral responses to mitigate virus exposure.

States reported strong revenue growth in the second quarter of 2021, but that is largely because of the lower base in 2020. Still, growth in state government revenues in the second quarter of 2021 was also strong compared with the same quarter in 2019.  

Despite a more positive fiscal and economic reality than initially feared, some underlying economic indicators are still troublesome: unemployment rates are still higher than prepandemic levels; labor force participation remains subdued, potentially because of health and child care concerns; and overall prices have grown substantially, resulting in a higher-than-usual inflation rate.