In political circles the so-called progressives are beginning to mutter that Massachusetts'
lagging revenues require suspension of scheduled reductions in the state's
income tax rate. Not so fast, folks.
Rate reductions so far have had only a minor effect. The
rate fell from 5.85 percent to 5.6 percent on Jan. 1. For the 12 months ended June 30, the state had a $579 million surplus.
Since then, collections (of all taxes) through Sept. 17 have run $100 million less than
projections. The Executive Office of Administration and Finance estimates that $40 million
more would have flowed into the till had the old rate been in effect.
In other words, the greater part of the shortfall is due to
the economic slowdown.
A slowdown, it must be added, that is rapidly turning into a
recession. There is nothing like a recession for throwing the issue of comparative overall state tax burdens into sharp
relief in boardrooms. The last thing our high-cost state ought to be doing is adding to tax burdens in a
recession.
In addition, there's the little matter of good faith. The
Legislature wouldn't admit that the tax rate increases of a decade previously were meant to be temporary, so a savvy
governor mobilized the
voters. They rolled back the rate themselves. Any change in that decision
would be defensible only if this state were on the edge of bankruptcy.
The first resort must be spending restraint. The governor
and legislative leaders already have announced lower targets for the current fiscal year, something we applauded in an
editorial on Wednesday. Before anybody considers tax increases -- and a suspension of the
scheduled reductions to 5.3 percent next year and 5 percent in 2003 definitely would count
as an increase -- another dose of restraint should be administered.
House Speaker Tom Finneran has been quoted as saying that
suspension of the cuts is "entirely premature," and that one big mistake of the 1988-1992 fiscal crisis was the attempt
to raise taxes before expenditures were cut. We couldn't agree more.
And then there's that $579 million. Added to the $1.7
billion in the rainy-day fund, that gives the state a reserve of about $2.3 billion. Much of that would have to be used
before tax increases could be justified. With wise policies in Washington, the state may not have to face
such a decision.
State House News Service
Friday, September 28, 2001
Crosby: Tax receipts continue to slide,
reserves will likely be tapped
By Michael P. Norton
STATE HOUSE, BOSTON, SEPT. 28, 2001 ... For the third straight
month, state tax collections continued to plummet in September, making it "highly likely" that state government
will need to dip into its substantial fiscal reserves, a top aide to Acting
Gov. Jane Swift said Friday afternoon.
State tax receipts in September were down 12.8 percent, or
$223 million from last September. For the first quarter of the fiscal year, actual receipts are down $293 million, or
7.4 percent. Administration and Finance Secretary Stephen Crosby said the numbers only
reflect some of the economic slowdown that occurred in the wake of September 11 terrorist
attacks on the Pentagon and World Trade Center towers.
For the month, income tax collections were off 14 percent,
sales and use tax receipts were down 12.1 percent and corporate tax collections slumped by 34 percent. All other tax
receipts were up 10.6 percent.
Crosby said the sharp economic downturn requires new controls on spending growth but
probably won't require cuts in state programs and services because the Commonwealth has
$4.5 billion stockpiled in various reserve funds. "Nobody on the outside will feel any of this,"
said Crosby. "That may change."
The state budget, now three months late, will likely emerge
from conference committee with a bottom line that is $240 million below the $22.9 billion spending plans approved in
early summer by the House and Senate. There have been no signals that House and Senate
leaders are on the verge of a breakthrough.
Counting several mid-year spending bills, the state spent
$22.35 billion in fiscal 2001. If the state can stick to the new $22.63 billion spending figure for fiscal 2002, a challenge
that will sorely test a group of lawmakers accustomed to major spending growth, that would be a
mere 1.8 percent increase in spending.
And Crosby has proposed a preliminary 3 percent spending
increase, to $23.3 billion, in fiscal 2003. For state agencies other than those involved with health care, education and
security, a budget like that means no growth. "Let's be honest," Crosby said. "If you level
fund somebody, you cut them."
In recent years, lawmakers have cut taxes, boosted spending
by as much as 6 percent a year, and frequently ended fiscal years with giant surpluses, portions of which were both
spent and saved. Just three months ago, the state ended a fiscal year with a $580 million
surplus, which has been locked away.
Tax receipts are falling $204 million shy of the benchmark
that must be hit to pay for proposed state programs and services this fiscal year. The administration will likely lower
those benchmarks in October.
If the current trend in tax collections were to continue for
the last three months of the fiscal year, state officials would be looking at an $800 million revenue shortfall in July. Crosby
said the economists advising the administration currently believe the economy will begin to grow
again in January. "Knock on wood, assuming there are no other terrible things
happening," he added.
Crosby said Swift remains committed to fully funding the
voter-approved public campaign financing law and will consider a new class of state police officers to cut down on large
amounts of overtime being paid in the post-attack era. Crosby said spending on new security
is costing about $2 million a month.