The state jobs report for June was issued Friday morning with all states and the District of Columbia showing nonfarm payroll increases as the nation continues to recover from the steps taken to slow the spread of COVID-19. The U.S. Bureau of Labor Statistics reported that the national unemployment rate declined by 2.2% to 11.1%, 7.4% higher than in June 2019.
But the economic effects of state and local government measures to “flatten the curve” to prevent the medical system from being overwhelmed varies widely from state-to-state. There are two main variables at work here—when the virus hit a state and how hard, and policymakers’ response to the pandemic.
As it turns out, a state’s general fiscal orientation is a strong indicator as to the extent of jobs losses since the virus hit. States with heavy tax burdens generally feature government policies that favor government intervention. States with lighter tax burdens lean towards smaller government with a relatively larger role for individuals, charities, and business.
Looking at 2016 individual federal income tax returns from households that itemize deductions, there are 27 states where the average State and Local Tax (SALT) deduction was under $10,000—the cap under the tax cut signed into law by President Trump in December 2017. These states collectively lost 7.7% of their nonfarm private sector employment from February 2020 to June. In the 23 states with average SALT deductions greater than $10,000, the rate of job losses was 57% greater, 12%.