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McCarthy Misleads on State and Local Revenue

House Republican Leader Kevin McCarthy misleadingly argues that federal aid to state and local governments is unnecessary because state and local tax receipts were “the highest… in American history” in the third quarter.

State budget experts say the third quarter revenues were inflated, because almost all states moved the deadline for filing state taxes from April 15 to July 15 due to the pandemic, pushing more tax receipts to the third quarter. Many states also extended the deadline to submit sales tax receipts to the state, shifting revenue between quarters.

“It is critical to look at the entire pandemic period, rather than individual quarters, as there has been too much shifting of revenues from one quarter to another, from one fiscal year to another,” said Lucy Dadayan, a senior research associate at the Urban Institute. Looking at the pandemic months, she said, state and local revenues are down overall.

McCarthy and other Republicans also have pointed to a recent analysis from J.P. Morgan that found states have not seen the “apocalyptic declines” in tax revenue that some feared. Specifically, the analysis found that there was an average decline of 0.12% in state revenue in calendar year 2020, and that 21 states saw positive revenue growth compared with 2019.

After citing the J.P. Morgan analysis, McCarthy said direct aid to state and local governments amounts to “blue-state slush funds that are not needed.” (Among the 21 states that J.P. Morgan identified as seeing positive revenue growth in the 2020 calendar year, there is a mix of

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