Tax Questions Complicate Massachusetts Budget Plans
Massachusetts Gov. Charlie Baker unveiled a $41 billion budget proposal today, beginning a process to have a spending plan in place for the state for the fiscal year starting July 1st. As always, one of the big unknowns is how much money will the state actually collect to balance the books.
The first step toward building a new state budget started a few weeks ago with the little noticed announcement of what is known as the consensus revenue estimate – a projection by the Republican administration and the Democratic legislative leadership upon which the next budget will be based.
Revenue is estimated to grow over this current fiscal year by 3.5 percent. That is the smallest forecast increase since 2010.
Although the state’s economy has been growing at a pace exceeding the nation as a whole, tax collections have lagged behind the budget benchmarks for the last three fiscal years. That has led to spending cuts or other adjustments to keep the budget balanced, as required by law.
As Baker noted in the State of the Commonwealth address, he inherited a sizable budget deficit when he took office in 2015.
" We began with a $1 billion structural budget deficit, today we have reduced that deficit to less than $100 million without raising taxes," said Baker.
Major tax increases are again off the table for this year, according to Baker and House Speaker Robert DeLeo.
Two questions that appear headed to the November ballot could have a big impact on how much tax money the state ends up collecting.
One would put a 4 percent surcharge on incomes exceeding $1 million. The other would cut the state’s sales tax from 6.25 percent to 5 percent.
The Massachusetts Taxpayers Foundation estimates the so-called millionaire tax could bring in $800-$950 million during the final six months of the next fiscal year, while the sales tax cut could reduce revenue by $600-$650 million.
The foundation is one of five business groups that have sued to block the millionaire tax from reaching the ballot.
Noah Berger, president of the Massachusetts Budget and Policy Center, a left-leaning research group, said raising taxes on the wealthy is the best opportunity the state has to raise the money needed to improve schools and transportation.
" It does it in a way that improves the overall fairness of our state tax system," said Berger
The question that asks voters to cut the state’s sales tax is sponsored by the Massachusetts Retailers Association.
Jon Hurst, the president of the trade group, said the aim is to help small businesses.
" They are under fire with a lot of new competition. The vast majority of online sellers today are tax-free," said Hurst.
Massachusetts, like all states, depends on Washington for a share of revenues. State budget-writers got a big break this week when Congress reauthorized the Children’s Health Insurance Program. Otherwise, the state would have been in the hole for $295 million.
Two new sources of revenue for Massachusetts should be available later this year when legal sales of marijuana begin and the first Las Vegas-style casino opens in Springfield.
The foundation estimates the first pot shops could generate $32-$54 million in taxes.
The state’s cut from the MGM Springfield casino after it opens in September is estimated at $50-$70 million.
((Material from the Associated Press was used in this report))