Alaska’s annual tax revenue has the highest level of volatility in the U.S., varying by as much as 34.4 percent beyond its overall growth trend, according to data from the Pew Charitable Trusts.
Alaska is trailed by Wyoming with 12.1 percent fluctuation, and North Dakota and Vermont, both with 11.6 percent. Pew found states with high levels of volatility were likely to rely especially on taxes on oil, gas, and other natural resource extraction, known as severance taxes.
Although 35 states have existing or proposed severance taxes, revenue makes up a small part of most states’ budgets, according to a June report from the National Conference of State Legislatures. For Alaska and North Dakota, however, it makes up a large portion. Alaska saw its tax revenue increase by 47 between 2011 and 2012, while North Dakota saw a 27.3 percent increase.
The least volatile sources of tax revenue include personal income and sales tax, which South Dakota and Kentucky, the most stable states, rely heavily on.
In the past decade, state tax collection has become more volatile, a Nelson A. Rockefeller Institute of Government study found, and although it makes it harder to budget, during years of higher-than-usual revenue, states are able to pay down debt, build reserves, and improve infrastructure, Pew noted.
“States choose what and how much to tax, but the volatility of individual tax streams is often influenced by factors outside policymakers’ control,” the Pew study read. “By studying volatility, policymakers can put in place evidence-based savings strategies that harness tax growth in good years to cushion the lean years.”