A new report from the Tax Policy Center, a left-wing think tank, said the state’s total revenue increased about 17.6 percent last year. State funds for rainy days – money that is set aside to cover unexpected costs – have arrived. “new record levels”, According to the National Association of State Budget Officers.
Yet those rosy budget balances may not last if the economy slows, as expected. The Federal Reserve has begun to raise interest rates in an attempt to cool economic growth and concerns are growing about the potential for another recession. Shares fell for another session on Monday, with the S&P 500 down 3.2% as investors concerned about a slowdown in global growthhigh inflation and other economic problems.
Cutting taxes too deeply now could put states on a weaker financial footing.
The Tax Policy Center said so forecasts of state tax revenues for the remainder of this year and next year they have been “alarmingly weak” as states have enacted tax cuts and spending plans. Fitch, the credit rating agency, recently said that immediate and permanent tax cuts could be risky in light of changing economic conditions.
“Substantial changes in fiscal policy can adversely affect revenues and lead to long-term structural budgetary challenges, especially if implemented all at once in an uncertain economic environment,” Fitch said.
State tax cuts are happening as the Biden administration struggles to respond to rising prices. So far, however, the White House has resisted calls for a gas tax exemption Jen Psaki, a White House press officer, said in April that President Biden was open to the idea. The administration responded by trying primarily to alleviate supply chain jams that created shortages of goods and by cracking down on rising prices, but inflation control rests largely with the Fed.
The White House declined to assess the merits of the state’s tax cuts, but pointed to the administration’s measures to expand fuel supplies and proposals to strengthen supply chains and reduce costs to health and l childcare as proof that Biden was taking inflation seriously.
“President Biden is taking aggressive action to cut costs for American families and tackle inflation,” said Emilie Simons, a spokesperson for the White House.