State Tax Reaction Differs From Early 1990s Downturn

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© TAX ANALYSTS. Reprinted with permission.

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State tax revenues were $32 billion lower in 2002 than in 2001, the first year over year revenue decline in recent history.1 Since then, budget conditions have deteriorated further, with an aggregate budget gap of $49 billion in 2003, according to the National Conference of State Legislators. The last time most states faced severe budget problems was in the recession of the early 1990s.

States typically legislate tax increases during economic downturns and tax cuts during booms. During the 1990 recession, policymakers raised taxes. Tax increases continued in 1993 and 1994, but were followed by tax cuts from 1995 to 2001. During the latter period, state tax revenues grew substantially, reflecting rapid income and capital gains increases, as well as "bracket creep" that increased average tax rates.

This report is available in its entirety in the Portable Document Format (PDF).

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

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