Beacon Hill has a money problem: too much money
There is so much excess money – in the billions! – it can be hard to keep track of it all. For those keeping score at home, here’s a breakdown of the state:
- Budget surplus: $4.9 billion
- Rainy Day Fund: $6.9 billion
- Federal relief funds: $2.3 billion
Excess funds and bad funds are at record highs. According to a forthcoming analysis by The Pew Charitable Truststhe Massachusetts “rainy day fund”, designed to help the state in times of economic crisis, has grown significantly in recent years and can now cover about two months of state government expenses, about two weeks more than the national average.
Money for 62F — which is triggered when revenue growth exceeds a recent increase in wages and salaries — would flow out of the surplus fund, leaving it with about $1.9 billion.
This would be even greater than last year’s surplus, which was close to $1.8 billion!
All that excess money comes as voters decide in November whether to raise taxes on the wealthy by imposing an income tax surtax on all individual incomes over $1 million. If the ballot initiative passes, the measure is expected to generate about $1 billion a year, money that will go to education and transportation.
The timing is special, given that the state is awash with money. Yes, the economy is expected to slow down, but as the Massachusetts Taxpayers Foundation reminded me, the state budget forecast calls for another $1.4 billion to be deposited into the rainy day fund over the course of the year to come.
This would leave a balance of around $8.4 billion – and possibly trigger another little-known measure that caps the rainy day fund at 15% of budgeted revenue. The excess goes into a tax reduction fundthat the legislator controls.
All of this makes me wonder: is our problem really not having enough money, or that Beacon Hill can’t decide how allocate everything in a timely manner?
Let’s go back to how we got here, and how Massachusetts isn’t alone. Almost all states have declared a budget surplus in the past two years, according to the National Association of State Budget Officials. The budget overrun is the result of federal stimulus, wage growth, strong stock market performance in 2021 and rising inflation.
If that last reason bugs you, here’s why: Sales taxes are up because prices are up.
In late July, the Legislative Assembly was set to agree on an economic development package that would have offered $1 billion in rebates and tax breaks for residents, along with a host of other investments and initiatives, but those talks fell apart when she realized 62F might kick. in.
Now lawmakers are waiting for State Auditor Suzanne Bump, whose office is tasked with producing a annual report in September certifying if 62F was triggered. Since the Legislative Assembly likes to dither, members seem no closer to figuring out what they might do. It doesn’t help that they’re on a five-month hiatus after the official session adjourned at the end of July.
Yet other state houses have moved forward decisively.
According to the Tax Foundationa nonpartisan research group, 11 states passed personal income tax rate cuts this year, six passed corporate income tax rate cuts, five suspended their gasoline and 11 return excess revenue to taxpayers in the form of rebates.
Timothy Vermeer, senior state policy analyst at the Tax Foundation, said it doesn’t surprise him that Massachusetts lawmakers are still wondering what to do with the extra money.
“Historically, the Massachusetts legislature preferred to spend it on programs rather than enact sweeping tax reforms or even rebates,” Vermeer said.
What’s also been on the table is whether the legislature can make a final run on 62F and block it from coming into effect. 62F, which passed by private initiative in 1986, was triggered only once.
There’s an argument to be made 62F is deeply flawed, and it’s one that the Massachusetts Budget and Policy Center is planning to do vehemently in the coming weeks. The progressive research group believes that tax caps are bad policy and do not reflect today’s economy and budget, which funds education and health care programs at higher levels compared to 80 years.
62F would also offer credits to everyone who pays taxes in 2022, meaning higher-income households would be in line for greater relief as they pay more taxes, rather than limiting refunds to low-income households. income who really need money.
But perhaps what irks Mass Budget most is that 62F was most likely triggered by pandemic-related accounting quirks and a new business tax credit program, according to senior analyst Phineas Baxandall. Policy and Advocacy Director of Mass Budget. For example, wages looked smaller and tax revenue looked bigger because billions of dollars in employment benefits didn’t count as income, while a new program made income look higher because credits to companies were not claimed in the same year they were issued.
62F is “terribly designed”, said Baxandall. “If the tax cap were triggered, it would be a strange confluence of circumstances, which has nothing to do with excess taxes… It is ironic that the tax relief package was derailed by the tax relief.
The Legislature should review 62F and could reasonably argue that the refund amount should be adjusted to reflect the unusual economic circumstances. But ignoring 62F altogether doesn’t seem right. The law is the law.
And we already know various groups – including Citizens for Limited Taxation, Massachusetts Fiscal Alliance, New England Legal Foundation, and Republican candidate for accounts Antoine Amore — are prepared to sue the state if there is an attempt to arrest 62F.
I’ll leave readers with one more budget thing to ponder, as TV commercials campaign for and against the Modification of equitable sharing (i.e. millionaire’s tax) escalate this fall: According to the Tax Foundation, Massachusetts is the only state in the nation this year seeking to raise income taxes.
The central question therefore becomes: does Massachusetts have too much money or not enough?
Shirley Leung is a business columnist. She can be contacted at [email protected]