Massachusetts Tax Collections Not Keeping Pace As State Spending Soars

Printed from: https://newbostonpost.com/2023/12/06/massachusetts-tax-collections-not-keeping-pace-as-state-spending-soars/

By Chris Lisinski
State House News Service

Beacon Hill’s growing financial headache got worse Tuesday when the Healey administration reported that tax collections in Massachusetts tumbled in November, putting the state’s revenue picture about $627 million below the projection for this point in the year.

The state Department of Revenue announced it collected $2.253 billion in taxes last month, which was $131 million or 5.5 percent less than in November 2022. It was also $274 million or 10.9 percent short of the benchmark figure the administration set for the month.

Through the first five months of fiscal year 2024, Massachusetts has hauled in about $14.097 billion in taxes. That’s a slight increase of $146 million, or 1 percent, over the first five months of fiscal year 2023, but $627 million or 4.3 percent less than the estimates the Healey administration and Legislature used to craft this year’s record $56 billion budget.

Tax collections have failed to hit benchmarks for five straight months, getting this state budget year off to a rocky beginning, and forcing the Healey administration to at least begin considering possible responses.  

“November collections decreased in non-withheld income, sales and use tax, corporate and business tax, and ‘all other’ tax in comparison to November 2022,” state revenue commissioner Geoffrey Snyder said. “These decreases were partially offset by an increase in withholding. The decrease in non-withheld income tax was driven primarily by an unexpected increase in income tax refunds. The decrease in sales and use tax was mainly due to a decline in regular sales tax. The decrease in ‘all other’ tax is mostly attributable to a decrease in estate tax, which tends to fluctuate.”

After embracing a rapid increase in state budget bottom lines in recent years, lawmakers and the Healey administration face a continued slowdown in tax collections that could inflict pressure to reduce revenue expectations and rein in spending.

State revenues including surtax collections need to increase 5.7 percent over the fiscal year 2023 total to hit the fiscal year 2024 benchmark, according to Doug Howgate, president of the Massachusetts Taxpayers Foundation. Five months in, the growth so far has been only a single percentage point, well below the necessary pace and significantly less than the 6.2 percent annual spending increase authorized in the state budget.

Administration officials urged caution against extrapolating based on the numbers so far this fiscal year.

November is typically responsible for about 6.5 percent of annual tax revenue, they said, putting it “among the smaller months for revenue collection because neither individual nor business taxpayers make significant estimated payments during the month.”

“Given the brief period covered in the report, November and year-to-date results should not be used as a predictor for the rest of the fiscal year,” the state Department of Revenue said in a press release about the latest data.

The benchmarks used in the report Tuesday, December 5 do not account for the impacts of a roughly $1 billion tax relief law Governor Maura Healey signed in October. The state Department of Revenue said the changes in that measure will start affecting revenues in December 2023 or in January 2024.

Most major tax collections are lagging below state projections. Income taxes, which are responsible for more than half of all tax revenues so far this year, are 2.8 percent below benchmark through November. Year-to-date sales and use tax collections are also 3.6 percent short of projections, corporate and business taxes are down 8.9 percent, and other types of collections are 10.9 percent less than expected.

Analysts with the Massachusetts Taxpayers Foundation pointed out that robust hiring in the wake of the COVID-19 pandemic is expected to slow, as is wage and salary growth, contributing to the sluggish withholding tax revenues.

And when it comes to sales tax collections, which represented about a quarter of all tax revenues last year, “it appears that purchases of durable goods have cooled considerably in Massachusetts and nationally,” the Massachusetts Taxpayers Foundation said in an analysis published Monday, December 4.

The Massachusetts Taxpayers Foundation and several other economic commentators on Monday suggested officials reduce their forecast for tax collections this year by hundreds of millions of dollars, saying they expect the below-benchmark performance so far to continue.

The administration sometimes adjusts its revenue forecasts upward or downward partway through the year, and governors also have the authority to trim spending through a maneuver colloquially known as “9C cuts.”

The last such cuts took place in December 2016 under then-governor Charlie Baker.

Massachusetts House and Senate Democrats — mostly operating with the support of Healey, a Democrat, and Baker, a Republican — have overseen a spending blitz in recent years.

Between fiscal year 2018 and fiscal year 2022, state spending from the general fund increased by 26.7 percent, significantly more than the 14.7 percent growth in the Boston area consumer price index over the same span, according to figures tracked by regional business groups.

Healey in August stamped her approval on a $56 billion budget for fiscal year 2024 (which runs from July 1, 2023 through June 30, 2024), roughly 6.2 percent higher than the prior year’s spending plan.

“The large gap between spending and CPI increases, even over a period with exceptionally high inflation, suggests that state spending is not limited to increased costs for employee salaries or goods and services,” business leaders warned last month in a letter to state budget-writers, referring to the Consumer Price Index, which helps measure inflation. “Instead, it is expanding each year and often on a large scale. Worth noting, even when accounting for the rapid pace of increases in health care spending – a significant share of which is reimbursed by the federal government – state spending still substantially outpaced inflation. This approach is not sustainable and not responsible.”

 

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