Texas Virus Surge Deals State a Hit With Sales Taxes Plunging

In Texas, one of the few states without an income tax, more than half the government’s revenue comes from its cut of what residents spend in stores, restaurants and bars.

But with the coronavirus raging, bars shuttered and nearly 2 million residents out of work, the state’s sales-tax revenue is tumbling, leaving the government poised to draw down the savings it built up when the economy was still booming.

“This is going to be a much longer lasting impact than I think most have originally anticipated,” Texas Comptroller Glenn Hegar said in an interview

Texas is among states that are being hit hard by the swift collapse of the economy, which turned a record-long expansion into a deep recession virtually overnight. With high unemployment and business closings cutting into tax collections, states are facing budget shortfalls of some $435 billion through 2021, exceeding those left after the last contraction over a decade ago, according to the Center on Budget and Policy Priorities.

Texas’s sales-tax collections in June dropped 6.5% from a year earlier to $2.7 billion, Hegar said in a statement on Wednesday. That follows a 13.2% drop in May, which was the steepest decline since January 2010. Most of the June sales tax revenue is based on purchases made in May and remitted to the state a month later.

“I think the legislature knows that we’re dealing with a significant contraction, obviously the state economy, national economy, global economy,” said Hegar, who estimates that the state will have about $8.5 billion of savings to draw from when the next legislative session begins in January. “The virus doesn’t care if you’re a blue state, red state or purple state.”

Eva DeLuna Castro, a state budget analyst at Every Texan, an Austin based research organization, said that the summer usually brings conference goers and tourists to Texas, bolstering spending at hotels and restaurants. That revenue has nearly evaporated and low levels of consumer confidence may mean it will be years before Texas’s revenue returns to pre-pandemic levels.

“Consumer confidence is way down and then people won’t be buying cars and goods and clothes -- they’ll wait on all of that,” she said. “They won’t have a vacation or spend money that is discretionary, and those are the things that our tax system gets at.”

Texas passes a biennial budget during the legislative session in odd numbered years, meaning the process will begin in January for the 2022-2023 biennium.

Governor Greg Abbott, a Republican, has already asked state agencies and higher education institutions to draw up 5% reduction plans.

©2020 Bloomberg L.P.

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