State Revenues Show Sluggish Growth Through the First Six Months of 2024

Total state government tax revenue collections rose 3.0 percent in nominal terms and 0.6 percent in real terms in the first quarter of 2024 relative to a year earlier Key tax revenue sources showed mixed performance. In the first quarter of 2024, personal income tax revenues declined by 1.4 percent in real terms compared to the previous year, while corporate income tax revenues rose by 2.4 percent. Inflation-adjusted sales tax collections fell by 1.7 percent, whereas motor fuel tax collections increased by 4.3 percent over the same period.

Preliminary data for the second quarter of 2024 indicate continued sluggishness in the median state tax revenue collections in the second quarter of 2024. Although nominal state tax revenues rose by 7.2 percent in the second quarter of 2024 compared with the same period in 2023, the year-over-year growth in the median state was a modest 1.0 percent.

This stagnation can be partially attributed to recent state tax policies, including income tax rate cuts and one-time rebates.

The fiscal outlook for states remains uncertain, with potential risks posed by ongoing economic fluctuations, policy changes, and the fading impact of federal pandemic aid. While many states have built up substantial rainy-day funds, which could help ease the transition to slower revenue growth, the long-term sustainability of recent tax cuts amid economic headwinds remains a concern.