State Tax Reliance Linked to COVID-19 Stay-at-Home Order Durations, Study Suggests

A new study indicates a correlation between a state's reliance on sales tax revenue and the duration of its stay-at-home orders during the initial phase of the COVID-19 pandemic. This suggests that public-health decisions at the state level may have been affected by unforeseen budgetary pressures resulting from public-health restrictions.

Nathan Goldman, co-author of the study and an associate professor of accounting at North Carolina State University, noted that while observational studies do not prove causation, a strong correlation was identified between state revenue sources and public-health policies during the pandemic's early period.

The Tax Policy Landscape

States exhibit considerable differences in their dependence on consumption taxes versus income taxes. For instance, Washington State has no income tax but a 6.5% sales tax, while Oregon has no sales tax but a progressive income tax system with a top rate of 9.9%. Researchers investigated how tax policy, in conjunction with the pandemic, might have influenced other policy choices.

Study Methodology

The study analyzed data from all 50 U.S. states and the District of Columbia. It specifically utilized state tax revenue data and information on three widespread health policies from early COVID-19: stay-at-home orders, restaurant closures, and bar closures.

Variables controlled for in the study included the political party of the state's governor, historical presidential election voting patterns, population, population density, unemployment rates, poverty rates, minimum wage, per capita tax collections, and geographic region. This was done to account for factors like conservative political orientation that might also influence policy decisions.

Key Findings

Findings showed that states without a sales tax were associated with longer stay-at-home orders. Furthermore, a higher proportion of a state's total tax revenue derived from sales tax correlated with shorter stay-at-home order durations.

Broader Implications

Similar correlations were observed at the national level for European Union countries and in county-by-county data for Virginia and Georgia. The study emphasizes the complex interplay of factors informing public-health decisions and highlights how tax policies can influence seemingly unrelated policy issues.

About the Study

The paper, titled "Is State Tax Policy Associated with State-Level COVID-19 Restrictions?," was published in the journal Contemporary Accounting Research. Co-authors included Stephen Lusch of the University of Kentucky and Luke Watson of Villanova University.