It seems like any events from pre-pandemic times are a distant memory. So many things have changed since then and the years of 2020 and parts of 2021 seem like such a blur. The disruptions to lives all over the world sent ripples through all parts of the economy, including taxes and government spending. While the initial thoughts were that local governments would need funding to plug holes in their revenues, the exact opposite happened. State and local tax revenue tied to sales taxes soared, even while federal funds flooded the coffers in what turned out to be a massive waste of taxpayer money.
It is a good time to look at how taxes have changed since before the pandemic. Also, many ask the question of how Utah compares to other states in relation to tax rates and overall tax burden. Comparisons can be made with income taxes, property taxes, sales taxes and several other taxes.
One useful comparison is looking at total state and local tax burden. This would include all state taxes including state income tax, property tax, state sales tax, all of the various local sales taxes. These are essentially the taxes that state and local elected officials have control over. The Tax Foundation in Washington, D.C. ranks states each year on this metric on a per capita basis.
With the latest data from fiscal year 2021, Utah ranks right in the middle of the pack at #23, with just about as many states having a lower tax burden on taxpayers than states that have a higher burden.
Since 2019 just before the pandemic, state and local taxes have risen 27% nationally. Boosted by robust sales tax revenue during the pandemic and economic recovery after the pandemic faded away, state and local governments have been seeing robust gains in tax collections. While many individuals and families might have suffered financially during the pandemic, – government did not suffer at all and grew revenues handsomely.
Revenues continued to soar in fiscal years 2021 and 2022 and have barely leveled off in 2023. In fact, most of any decline in the near term has been concentrated in California and New York, high-tax states that rely heavily on very high marginal income tax rates. As people and businesses flee those states, their combined growth in tax revenue since 2019 has only grown at about 25% of the national average.
Other than the outliers of California and New York, most states are substantially better off than they were before the pandemic, even after adopting tax relief in about half of those states.It appears that revenues are high enough for the tax cutting trend of 2021, 2022 and 2023 to continue across the country in 2024.