How State Tax Policy Responds to Economic Recessions

By Ron Snell

This report examines state tax policy in response to national recessions and recoveries from 1988 to the present. It tracks changes in three major state taxes, the personal income tax (PIT), the general sales tax (GST) and the corporate income tax (CIT) as the United States has cycled through recession and recovery. This introduction explains state budget and tax practices that provide the background for the discussion that follows. Three subsequent sections examine state practices regarding the PIT, GST and CIT in the course of the business cycle. An appendix addresses methodological issues.

This report includes:

• A general introduction of how state tax policy responds to economic recessions.
• Why year-end balances fall before the beginning and after the end of a recession.
• Personal income tax policy changes and recessions.
• General sales tax policy changes and recessions.
• Corporate income tax policy changes and recessions.
• A discussion of methodology.