Reliance on top earners exposes states and downstream entities to revenue volatility

Source: Matthew Butler, Emily Raimes, Nicholas Samuels, Timothy Blake, Moody’s, Sector In Depth, State and local government – US, March 20, 2019
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The high-income states of California (Aa3 positive), Connecticut (A1 stable), New Jersey(A3 stable) and New York (Aa1 stable) rely heavily on tax revenue from their biggest earners to fund services. Such earners make up between 1% and 3% of these states’ taxpayers but account for more than 40% of personal income taxes. This dependence exposes the states to the volatility in high earners’ income, particularly as tax increases enacted since the 2007-09 recession have fallen predominantly on the top earners.