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After pandemic-era surpluses fueled tax cuts and new spending, state governments are now grappling with slower revenue growth, Governing writes.
By the end of 2024, tax collections in 40 states were trailing their 15-year trends, a dramatic shift from early 2022 when nearly all states were above trend. The downturn isn’t recession-driven but stems from fading pandemic-related economic boosts and widespread tax reductions. Although collections are stabilizing, growth remains sluggish and below historical averages, creating long-term budget pressure.
In fiscal 2025, about half of states saw revenue gains—up from the prior year—though many were muted by recent tax cuts. Performance varies widely: Minnesota and Hawaii posted strong gains, while Nebraska and Oregon saw steep declines, in part due to tax rebates and cuts. Personal income taxes lagged the most, especially in states like Nebraska and Oregon, while corporate income taxes exceeded long-term trends in most states. Sales tax performance was mixed.
Of the 41 states that collect broad-based personal income taxes, 37 had collections that underperformed long-term trends, ranging from 44% below trend in Nebraska and 34.7% below in Oregon to less than 1% below in Louisiana.
Complicating matters further, federal policy shifts under the Trump administration have added new fiscal uncertainty, raising concerns about states’ second-largest funding source.
