State revenue growth in fiscal year 2024 remained weak, mirroring the trend seen in fiscal year 2023. This sustained weak growth followed a period of robust growth during the preceding two years, driven by temporary factors including federal fiscal aid during the COVID-19 pandemic and strong stock market performance. States previously forecasted that this growth would continue, but revenues in fiscal years 2023 and 2024 have fallen below those earlier projections.
The state revenue outlook remains uncertain as states brace for the expiration of Tax Cuts and Jobs Act provisions and possible fiscal policy changes following the 2024 presidential election.
Trends in Tax Revenue
State tax revenue trends both in the second quarter and throughout fiscal year 2024 reveal a complex and uneven fiscal environment. While some tax streams showed temporary gains, broader patterns highlight ongoing structural challenges and regional disparities. Below are key revenue trends in fiscal year 2024 by tax type.
Personal income taxes: Personal income tax revenues saw notable short-term gains, driven largely by California’s delayed tax filing deadline, which shifted substantial collections into the second quarter of 2024. However, the broader picture shows declines in personal income tax revenues across many states due to income tax rate cuts and volatility in nonwage income sources, such as capital gains. Personal income tax collections remain increasingly volatile as states rely more heavily on high-income earners and stock market performance.
Corporate income taxes: Corporate income tax revenues also showed temporary growth, but it was largely concentrated in California due to its delayed tax deadline. Excluding California, the nation saw declines in corporate tax revenues, reflecting weakened corporate profits and tax policy changes in several states.
Sales taxes: Sales tax revenues declined in real terms (i.e., after adjusting for inflation) for the fifth consecutive quarter, which reflects a broader shift in consumer spending away from taxable goods and toward untaxed services that poses long-term risks. Some states expanded their sales tax bases by newly taxing certain services, but many services are still not subject to state sales taxes.
Regional variations: State revenues varied widely across states and regions. The Far West region reported a robust 28.8 percent increase in overall tax revenues in the second quarter of 2024, driven by California’s delayed income tax filing deadline. Meanwhile, states like Alaska and Oregon faced steep revenue declines due to unique economic and policy impacts. Other regions, such as the Plains and Great Lakes, experienced declines in overall tax revenues.
What to Expect in the Future
States forecast that revenue growth will remain modest, despite ongoing economic and policy uncertainties.
While some states predict stronger growth in fiscal year 2025, particularly in personal income taxes, the overall trend is one of restraint. Many states have already made significant tax cuts, which will continue to slow revenue growth. Corporate income taxes in particular are expected to grow little or even decline because of uncertainty about both the economy and potential federal policy changes following the 2024 presidential election. These trends highlight the need for careful planning and policy decisions that address structural challenges and help states maintain stable budgets.
What We’re Focusing On
This quarter, the report introduces a special focus on the latest available comprehensive state revenue forecasts for fiscal year 2025. The data, including personal income taxes, corporate income taxes, sales taxes, and overall tax collections, show that states anticipate a continued slowdown in revenue growth. These forecasts offer valuable insights into how both economic factors and recent policy changes will affect state revenues, but, like all projections, they are likely to change as new data emerge and economic conditions change.
