Some states have coffers full of extra money. Here’s how they spend it

Depending on where you live, you may receive cash or other financial aid from your state.

As the US economy continues to recover from the pandemic, some states are using (or planning to) extra money in their households to either send out stimulus payments, take tax cuts, or otherwise provide relief for their residents. This is in sharp contrast to a year ago when heads of state feared the worst due to shutdowns.

“It looks like most states are cashless and have a lot more than expected,” said Katherine Loughead, senior policy analyst at the Tax Foundation. “They thought they had a deficit.”

More from Personal Finance:
The pandemic changed the way the rich donated to charity
A Roth IRA could help you buy a home. What to know
Senators urge the FTC to protect itself from travel fraud

Although revenues fell sharply at the start of the pandemic more than a year ago, most states have seen their tax inflows spike to reverse those early declines, according to a report by the Pew Charitable Trusts. By February, 29 states had generated as much, if not more, revenue in the past 12 months than in the year before the pandemic.

States like Hawaii or Nevada that are more dependent on tourism, or those that are more dependent on natural resources like Texas, Alaska and Hawaii, suffered a major slump during the pandemic and their revenues are still declining, Michael Leachman said , Vice President, State Finance Policy, Center for Budget and Political Priorities.

“There are a lot of differences across the country,” Leachman said.

Surplus or not, state governments will receive a total of $ 195.3 billion in federal aid thanks to the US bailout – that’s roughly 20% of annual tax revenue, Loughead said. Another 155 billion US dollars will flow into local and tribal governments and territories.

“The question is, how do you use federal aid and then how do you feel about government policy in general,” Leachman said.

“A good number of states are looking at ways to help people who have struggled particularly hard during the pandemic and are taking steps to address the inequalities that the pandemic has created,” he said.

It looks like most states are cashless and have a lot more than they expected.

Katherine Loughead

Senior Policy Analyst at the Tax Foundation

Leachman pointed out payments or tax credits for low-income families in states like New York, New Mexico, and Maryland. In California, with a surplus of $ 75 billion, Governor Gavin Newsom has proposed sending $ 600 checks to residents earning up to $ 75,000, as well as a number of other initiatives that would ease the financial burden on some households : overdue rents or utility bills and maybe unpaid tickets.

In Idaho, a $ 500 million surplus enables a tax break for residents who filed a tax return for 2019, Loughead said. The amount is either $ 50 per person or 9% of the tax owed, whichever is greater. Legislation also approved a lowering of the top tax rate from 6.925% to 6.5%.

Montana has also introduced income tax cuts due to a surplus, cutting the highest income tax rate from 6.9% to 6.75% from next year. Oklahoma and Iowa also have tax cut proposals on the table, Loughead said.

At the same time, the Treasury Department has stated that the state aid cannot be used to offset tax cuts. However, most changes in line with federal tax law are allowed, Loughead said.

“This could include exclusion of US $ 10,200 unemployment income or other corporate and industry tax breaks,” she said.

States could also use the money to give residents stimulus checks. “That’s okay, but there are some gray areas when you do it by tax code,” Loughead said.

Many states also plan to focus on improving their infrastructure – that is, on broadband, sewage or water projects.

In addition, an estimated 1.2 million public sector workers were laid off during the pandemic, meaning states may be able to restore jobs and services that have been cut, Leachman said.

“There are probably a lot of public employees who haven’t been reinstated,” he said.

Comments are closed.