State tax collections grew sluggishly for the first nine months of this fiscal year, hinting at underlying weakness in the U.S. economy even before President Trump’s April tariff announcements upended the stock market and depressed consumer confidence.
Revenues in the typical state grew 2.4% over the July 2024-March 2025 period compared with the same period a year earlier, according to an analysis from the Urban Institute, a Washington, D.C., think tank. The report assessed preliminary data from 46 states, most of which began Fiscal Year 2025 on July 1, 2024.
Sales tax collections grew by 1.2% over the first nine months of the fiscal year, the analysis found. That slow growth — a 0.7% decline, in inflation-adjusted terms — suggests consumers are cutting back due to inflation and economic uncertainty, said Lucy Dadayan, principal research associate at the Urban-Brookings Tax Policy Center and author of the analysis.
“That’s really an indication that consumers are not spending as much, that they have less discretionary income,” Dadayan said.
The slow growth in sales tax collections comes despite solid growth in personal income tax collections, reflecting a healthy labor market and taxes owed on capital gains realized in 2024.
The typical states’ personal income tax collections jumped 6.7% over the first nine months of FY 2025 compared to the same period the year before, Dadayan found.
Her data reflects economic activity through the end of February this year, and thus does not reflect the full effect of Trump’s trade wars. Trump announced on April 2 “reciprocal” tariffs on U.S. trading partners and, later, sky-high tariffs on Chinese imports, which led China and other nations to retaliate by raising taxes on U.S. exports.
Trump paused the reciprocal tariffs after his announcement caused chaos in the stock and bond markets. His administration this month also scaled back tariffs on Chinese goods.
Still, surveys show business and consumer confidence has plummeted since the year began and that consumers expect prices to continue to rise.
Budget writers in many states in recent months have downgraded their revenue projections for the coming fiscal year, as they brace for tariffs to take a bite out of economic growth. State lawmakers are trying to budget conservatively, with one eye on a potential economic slowdown and another on congressional Republicans’ plans to cut federal funding for social services such as food stamps and Medicaid.
“Moving forward, there are lots of uncertainties ahead for state and local governments,” Dadayan said.
Thirteen of the 46 states Dadayan studied collected fewer total tax dollars over the first nine months of FY 2025 than they did the prior fiscal year. Nebraska, New Hampshire and North Dakota experienced double-digit percent declines.
Thirty-three states collected more dollars overall. Oregon, New York and Vermont experienced double-digit percent increases.