States Turn to Tax Amnesties to Close Budget Holes
Critics say approach could reduce long-term revenue. Can policymakers limit the drawbacks?
For eight weeks this summer, starting on July 15, Indiana is offering many individuals and businesses who owe back taxes a deal: no penalties, no interest, and no prosecution if they simply pay the past-due amount.
Other states have pursued similar strategies recently. New Hampshire provided an amnesty that concluded in February 2026, and Illinois’ ended in November 2025. Although states have offered well over 100 other such reprieves since the 1980s, these latest three all arrived in less than a year—a sign of the increasing fiscal pressure states face.
But budget experts and watchdogs have not generally shared state leaders’ enthusiasm for this approach. Critics argue that amnesties offer states a short-term financial boost at the expense of reduced tax revenue and diminished tax filing and compliance over the long term—and that those risks compound when states provide repeated amnesties.
Because no government has the resources to audit more than a small fraction of taxpayers, state revenue collections depend on residents and businesses voluntarily satisfying their tax filing obligations. But if taxpayers expect an eventual amnesty, why would they choose to pay on time and in full?
Furthermore, critics warn that amnesties simply accelerate collection of some revenue that tax agencies would eventually have collected anyway through normal enforcement efforts. For example, of the $103.8 million New Hampshire’s amnesty garnered, $79.5 million came from existing audit cases. Indiana’s Department of Revenue acknowledged this reality in an email to The Pew Charitable Trusts, saying that amnesties “will reduce your collection numbers for the next two years.”
For states considering amnesties, the question is whether they can design their policies to reduce these risks or even spur amnesty beneficiaries to become regular payers. As more states face fiscal stress, they may turn to amnesties for short-term budget help. And if they do, policymakers will need to exercise care to avoid the long-term trade-offs.
Short-term boosts versus long-term costs
One way to improve results, suggested Justin Ross, professor and director of Ph.D. programs in public affairs and public policy at Indiana University Bloomington, is to look to the past. Ross’ research charts two distinct waves of amnesties.
First, in the 1980s, states paired their offerings with stiffer penalties for tax evasion and increased funding for enforcement. The idea, Ross explained in an interview with Pew, was to give would-be taxpayers a final chance to pay before the harsher penalties kicked in—and to generate a pot of money to pay for the enforcement. States bargained that the amnesties would bring more individuals and businesses into the tax system and that the tougher penalties would increase the likelihood that they would become reliable taxpayers.
But this idea of enhancing tax compliance, Ross said, was less prominent in the next wave of amnesties. Instead, in the 2000s and 2010s, states were seeking a quick influx of cash to help them deal with severe budget challenges from the 2001 dot-com bust and the 2007-09 Great Recession. Amnesties were one of many temporary solutions that states embraced during this period. But like any approach that uses one-time money to pay for ongoing costs, they often delayed problems instead of solving them, enabling states to balance their budgets in the near term while pushing the hard decisions into the future. And without the focus on increased enforcement, they also risked undermining tax compliance.
“They’re just a gimmick,” James Alm, professor emeritus of economics at Tulane University, who began writing about amnesties more than 35 years ago, told Pew. Although he noted that the harm from amnesties is sometimes overstated, Alm said that, “they don’t generate that much revenue and the long-run effects can be potentially significant and negative.”
The frequency with which states were offering tax amnesties during the 2000s and early 2010s magnified these concerns. Then in 2013, the National Association of State Budget Officers (NASBO) observed in its retrospective on budgeting during the Great Recession that, “[T]he increasing prevalence of tax amnesties over the past decade has been shown to encourage taxpayers to wait for the next amnesty rather than perpetually engage in voluntary compliance with the revenue system.” But the report also noted that, “when implemented sparingly short-term budget management tools, such as tax amnesties, can improve fiscal administration and reinforce structural reform efforts like tax compliance.”
The pace of amnesties has since slowed. The 2020s have only seen a handful of general amnesties for individuals and businesses: Connecticut and Nevada each offered one in 2021, and Massachusetts did so in 2024. As Terri Steenblock, director of tax and revenue administration at the Federation of Tax Administrators, observed in an interview, “We haven’t seen as many amnesty programs as we did in the distant past, and I think that’s primarily a result of state budgets,” adding that lawmakers usually enact amnesties to help close budget gaps.
Meanwhile, the goal of the original wave of amnesties—increased tax compliance—remains incomplete. States routinely collect billions of dollars less than what taxpayers owe, but few states even measure the size of these gaps, let alone have effective plans for closing them. These shortfalls stem from would-be taxpayers who do not file, payers who file but underreport their income, and those who file accurate returns but fail to pay on time and in full.
New amnesties
In that context, the recent resurgence of amnesties reflects states’ tightening fiscal conditions. And much like their counterparts in the 2000s and 2010s, policymakers in Illinois, Indiana, and New Hampshire faced budget problems that motivated their search for a quick revenue boost.
Indiana’s legislators approved the amnesty in spring 2025 after downgraded revenue estimates sent them scrambling to balance the budget. In addition to the amnesty, they also approved across-the-board budget cuts and a major cigarette tax increase. Similarly, New Hampshire lawmakers approved their amnesty amid soft revenue collections.
At a time when lawmakers are trying to address constituents’ concerns about affordability, state leaders also can cast amnesties as part of their response. That was part of the rationale that Illinois Department of Revenue Director David Harris presented to legislators when pitching Governor JB Pritzker’s (D) amnesty proposal in 2025. “So if we can go to that taxpayer and say, ‘we can give you a break, you don’t have that penalty,’ this gives the taxpayer an inducement to pay,” Harris said at the time. “It’s a benefit to us, but it’s also a benefit to the taxpayers.”
How amnesties are designed, however, may affect whether and how much they benefit a state by generating significant revenue that the state would not otherwise have received, as well as whether they have harmful effects on long-term tax compliance. For example, Indiana University’s Ross said that states should avoid including in their amnesties “accounts receivable”—money that revenue departments already know they are owed from audits or from filed but unpaid taxes—because states should be able to collect that money without an amnesty. (In contrast, states may struggle to identify when individuals or businesses have underreported their income or failed to file their required taxes.)
He also said that Indiana’s new amnesty includes some positive features, such as forbidding serial participation—that is, excluding anyone who took advantage of the state’s previous two amnesties—and limiting eligibility to taxes from 2023 or earlier. “The older the tax liability is, the harder it is to just collect it with regular enforcement,” Ross said. “And it tends to be more costly. If you’re able to get those in through a tax amnesty, then that probably was some real revenue collection.”
Perhaps most importantly, given the criticism from NASBO and others of repeated amnesties as impediments to voluntary compliance, this is Indiana’s first amnesty since 2015. Likewise, New Hampshire’s amnesty is the state’s first since 2016. “Given New Hampshire’s history of a significant amount of time between amnesty programs, I do not think that the program would discourage voluntary compliance and certainly there will be additional revenue from getting new taxpayers filing regularly,” Lindsey M. Stepp, commissioner of the state’s Department of Revenue Administration, said in an email to Pew.
Final thoughts
Despite the criticisms, the enduring use of tax amnesties shows that the bargain they offer—a revenue boost without the need to raise taxes—appeals to state leaders trying to solve budget challenges. As with many budget balancing strategies, the key for states is to try to limit long-term fiscal harm, even when seeking short-term relief. “My lesson of amnesties is don’t do them,” Alm said. “But if you’re going to do them, only do them once. And if you’re going to do them, make sure that you publicize increased post-amnesty enforcement.”
Josh Goodman works on The Pew Charitable Trusts’ state fiscal health project.
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