Which states run deficits

Other major spending items related to COVID and its economic fallout have followed the same trajectory. Then the pandemic hit.

Most of this increase has come from the federal response to the pandemic and its economic fallout, and this was once again the case in July. Another program that has seen a surge in coronavirus-related spending is the Public Health and Social Services Emergency Fund, which, in recent months, has mostly gone to reimbursing health care providers for costs or lost revenues due to COVID and providing money for testing and treatment of COVID Analysis of notable trends: June represented another record-breaking deficit.

Almost half of all government spending in June was through the SBA. The drop in revenue between last June and this one was due almost entirely to the administration delaying the deadline for quarterly tax payments from June 15 to July CBO expects most of this delayed revenue to eventually be collected, although some will be lost as businesses fail before the new payment deadlines.

This represents almost double the monthly deficit recorded in May Analysis of notable trends: CBO notes that the fiscal year so far can be split into two distinct parts: one before the new coronavirus had affected economic output and federal finances October through March and one in which the pandemic had ravaged both April and May.

In the pre-coronavirus part of the year, outlays and revenues were each higher than at the same point last year. While much of this drop is due to job loss and reduced incomes, some also derives from the shift in tax deadlines passed in the CARES Act, such as the ability for employers to defer their payroll taxes until the end of this calendar year.

The income tax decline also reflects the delayed April 15 tax filing deadline. CBO anticipates that those budgetary effects will be more noticeable in April. Total revenues so far in Fiscal Year increased by 0. Total revenues so far in Fiscal Year decreased by 0. The dip in corporate revenues is primarily attributable to the Tax Cuts and Jobs Act of This dip mainly reflects the reduction of corporate tax rates enacted in the Tax Cuts and Jobs Act of This entry reflects the U.

Revenues in FY remained almost entirely flat, growing by less than 1 percent. Outlays rose across all major categories, including interest spending, defense spending, and spending on major entitlement programs. About a third of this dip occurred in June, which CBO attributes to a decrease in corporate tax collection largely due to the implementation of the Tax Cuts and Jobs Act of Provisions lowering the corporate tax rate and expanding the ability of corporations to immediately deduct the full value of equipment purchases particularly had an impact on the revenue decline.

This increase is partially attributable to a growing workforce and increases in wages and salaries subject to taxation. Treasury securities. Spending increases in Medicare, Medicaid, defense, and other programs also contributed to the year-over-year deficit increase in FY to date.

In general, stricter BBRs, which prohibit states from carrying deficits into the following fiscal year, are associated with tighter fiscal outcomes, such as smaller deficits and more rapid spending adjustments during recessions. Although all states except North Dakota and Wyoming have some restrictions, the design and stringency of requirements varies across states. For example, although Minnesota and New Mexico require the governor to propose a balanced budget, they do not require the legislature to pass one.

In California, the governor must propose, the legislature must pass, and the governor must ultimately sign a balanced budget. In , 38 states required the governor to submit a balanced budget to the legislature; 38 though not necessarily the same 38 required the legislature to pass a balanced budget; and only one, California, required the governor to ultimately sign a balanced budget.

Most states have a strong BBR per this classification system figure 1 , and in general states have tended to strengthen their BBRs over time. BBRs can be either constitutional or statutory. While constitutional or statutory designations do not necessarily determine whether a rule is strong or weak, constitutional requirements can be more difficult to override, and may require a legislative supermajority or vote of the people to amend. Under some circumstances, state policymakers can circumvent their BBRs.

These rules typically apply to a narrowly defined share of total state spending, and government fund accounting practices can provide opportunities to shift obligations between funds or years.

For example, because BBRs are applied on a cash rather than accrual basis, states can push a payroll or state aid payment from the last month of the current fiscal year into the first month of the next.

This allows states to meet the legal requirement to balance their budgets while leaving actual resources and obligations out of balance. During the —10 budget cycle, for example, California moved its payroll obligation by one day to balance its budget.

These actions only produce one-time savings, however, as the state simply transfers its obligation to the following fiscal year. If a shortfall results from sudden changes in economic conditions, this flexibility can allow a state time to recover economically and meet its fiscal obligations. However, it can also lead to ongoing reallocation of expenses to the next budget year.

Strong antideficit provisions, such as those in BBRs, are associated with:. Fiscal and budgetary institutions like BBRs, particularly when enforced strongly, influence both the size and composition of states' responses to fiscal deficits. Poterba , for example, found that states with strict BBRs, which prohibited them from running deficits into the following year, were better able to adjust to deficit shocks, especially if one political party controlled both the governorship and the state house of representatives.

More recent research continues to show that states with relatively strong BBRs cut their budgets more in response to deficits than states with weaker rules.

This was true for the two decades preceding the recession, with even more pronounced effects between and Rueben, Randall, and Boddupalli Additionally, in more recent years, states with strong balanced budget rules bridged less of their gap with revenue increases than in years prior, leaning more on spending cuts or possibly reserve funds to bridge gaps. These actions exacerbate, rather than counter, the effects of an economic contraction. During and following the Great Recession , for example, states with strong BBRs cut their budgets and raised revenues precisely when the economy and residents would benefit from states spending more and easing taxes.

Hou, Yilin, and Daniel L. Smith, Daniel L. Bayoumi, Tamim, and Barry Eichengreen. Levinson, Arik. Poterba, James M. Randall, Megan, and Kim Rueben. Skip to main content. Briefing Book Fiscal Federalism and Fiscal Institutions What are state balanced budget requirements and how do they work?

How does the federal government spend its money? What is the breakdown of revenues among federal, state, and local governments? How do US taxes compare internationally? Federal Budget Process How does the federal budget process work? What is the history of the federal budget process?

What is the schedule for the federal budget process? What is reconciliation? How is a budget resolution enforced? What are rescissions? Federal Budget Outlook How accurate are long-run budget projections? What have budget trends been over the short and long term? How much spending is uncontrollable?

What are tax extenders? What options would increase federal revenues? What does it mean for a government program to be off-budget? How did the TCJA affect the federal budget outlook?

Taxes and the Economy How do taxes affect the economy in the short run? How do taxes affect the economy in the long run? What are dynamic scoring and dynamic analysis? Do tax cuts pay for themselves? On what do economists agree and disagree about the effects of taxes on economic growth? What are the economic effects of the Tax Cuts and Jobs Act? Economic Stimulus What is the role of monetary policy in alleviating economic downturns?

What are automatic stabilizers and how do they work? What characteristics make fiscal stimulus most effective?

Distribution of Tax Burdens How are federal taxes distributed? Are federal taxes progressive? The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.

Related Articles. National Debt Explained: History and Costs. Partner Links. Related Terms Bicameral System Definition A bicameral system refers to a government with two legislative houses or chambers. What Is Fiscal Policy? Fiscal policy uses government spending and tax policies to influence macroeconomic conditions, including aggregate demand, employment, and inflation.

Find out what the U. What Is Clintonomics? Clintonomics refers to the economic philosophy and policies promulgated by President Bill Clinton, who was president of the U. What Is a Deficit Spending Unit? A deficit spending unit describes how an economy or economic unit within an economy has spent more than it has earned over a given measurement period. Investopedia is part of the Dotdash publishing family. The shades of pink represent total expenditures per capita and the shades of blue represent total revenues per capita.

Nevada: Hawaii: Idaho: North Carolina: New Hampshire: Wyoming: Kentucky: Alaska: Vermont: With November on the horizon, questions about government debt, tax rates, and the expansion of social programs will be at the forefront of national conversation.