Where'd that state tax go?... The virus economy has plunged spending, caused major layoffs, and stuck a knife in travel. The economic pain felt by individuals and businesses is catching up to states, which are losing their most important sources of revenue:
- Sales Tax: Your cold brew costs $4, but your state slaps on a nice 7% tax on top. Rates vary state by state (some, like New Hampshire, don't charge it). But highly sales tax-dependent states like Florida and Nevada are struggling as spending plummets (aka, nothing to tax).
- Income Tax: Just when you thought you were done filing taxes, there comes the state section. Income tax revenue is plunging as 17M have been laid off across the country — plus the filing deadline was extended by 3 months to July 15, meaning delayed cash flow.
- Tourism Tax: That reason your hotel bill is higher than list price (even when you didn't raid the minibar). Can be collected by states or cities/counties. Las Vegas is missing out on 12% resort fees thanks to shuttered hotel/casinos.
States use that money for key resources... Like public schools, roads, and unemployment benefits. Now, at the same time that revenue is down, states are spending more on unemployment and medical expenses — a double-whammy for the piggy bank. Even states with a lot of cash saved up (like Arizona) will likely be running deficits by 2021.
States and cities rely on your earning/spending... Since that's significantly down, we can expect some big budget cuts ahead — and maybe even some bankruptcies. The state's piggy banks will recover after its people and businesses do. Just like individuals and businesses, states can:
- Get credit ratings based on ability to pay back loans.
- Take on debt by issuing bonds.
- File for bankruptcy when they can't pay back debt.
- Get bailed out by the federal government in billions of aid.