Joseph Staruski

Massachusetts Tax Revenues Surpass Pre-Pandemic Levels

/0 Comments/in , , , , , , /by Joseph Staruski
Share on Facebook
Share on Twitter
Share on
LinkedIn
+

You heard it right, the state has too much money! In what one State House News Service reporter has called a “tax collection deluge,” the state has collected an enormous amount of money from taxpayers this year. All of this has people asking: where is all the money coming from?

Not only has revenue reached its pre-pandemic levels, but it has far surpassed them, even accounting for inflation. Compared to FY 2019, revenue is up by 38 percent according to the Pioneer Institute’s MassOpenBooks website, or 24.9 percent adjusted for inflation (using BLS inflation data).

Major Drivers of Growth

Figure 1: The relative size of Massachusetts revenue streams for the month of March 2022. The categories of “tax withheld, net” and “returns & bills & estimated payments, gross” are both part of personal income tax collection, which accounts for the majority of State tax revenue. Source: The Pioneer Institute’s MassOpenBooks Website.

The increase in personal income tax collections explains much of the increased revenue. Income taxes account for 54.3 percent of year-to-date (YTD) revenues so far. They are 40.1 percent compared to FY 2019 (See Figures 1 and 2).

The increased income tax revenue is not due to higher taxes. The income tax rate actually decreased from 5.05 percent in 2019 to 5 percent today. Therefore, something else is causing the revenue windfall.

Massachusetts residents must be bringing in significantly more money this year than in previous years. Whether that be from wage increases, job growth, industry change, or some other factor, it is a good sign for the economic prosperity in Massachusetts.

The second largest driver of increased revenue is the corporate excise tax. This tax has brought in about 10.1 percent of YTD revenues and increased by 47.8 percent since FY 2019, contributing a huge portion of revenue to state coffers.

Pandemic Recovery Indicators

Figure 2: Massachusetts year-to-date (YTD) revenues for FY2019 and FY2022 in thousands of dollars. Source: The Pioneer Institute’s MassOpenBooks Website. 

Revenue streams recovering from pandemic losses account for the rest of the increase. To assess this comeback,it is best to compare revenues for only the month of March because the recovery was less strong in the earlier months of this fiscal year (which runs from July 2021 to June 2022).

Revenue from the state’s room occupancy tax is one such stream that has fully recovered from its pandemic woes. Massachusetts charges a 5.7 percent excise tax on room rentals of 90 days or less at hotels, motels, B&B’s, and lodging houses. March revenue from this source alone is up by about 150 percent from FY 2021. But more importantly, revenue from this source is above its pre-pandemic level, with an increase of 24.3 percent over FY 2019 (11.3 percent adjusted for inflation).

The Commonwealth also has a 6.25 percent sales tax on meals purchased at restaurants. March revenue from the meals sales tax increased 60.7 percent compared to March of last year and 24.7 percent compared to pre-pandemic levels (FY 2019).

Revenue from the tax on alcoholic beverages sold at clubs has seen the most dramatic recovery of all. In March 2021, revenue from this tax was only $5,090, but it has increased 1,906 percent to $102,090. It is not a major contributor to the tax base, but it is a noteworthy recovery.

Take-Aways

Overall, this tax revenue analysis is encouraging. Examining the ways that state revenues are changing, shows how Massachusetts is changing. Revenue reflects major changes in workforce demand that have resulted in higher salaries and wages. It also shows how certain industries impacted by the pandemic are coming back to life.

Figure 3: State of Massachusetts tax revenues in March only in thousands of dollars. March is the most recent month for which this data is available. YTD revenue is not sufficient for analysis because some effects of the pandemic were still underway during the earlier part of FY2022 (which runs from July 2021 to June 2022). Source: The Pioneer Institute’s MassOpenBooks Website.

 

About the Author:

Joseph Staruski is a government transparency intern with the Pioneer Institute. He is currently a Master of Public Policy Student at the University of Massachusetts, Amherst. He was previously an opinions columnist with the Boston College student newspaper The Heights and an Intern with the Philadelphia Public School Notebook. He has a BA in Philosophy and the Growth and Structure of Cities from Haverford College. Feel free to reach out via email, linkedin, or write a letter to Pioneer’s Office in Boston.

Related Content:

Pioneer Statement on Continuing Slide in Massachusetts’ Revenue

The Commonwealth’s tax collections continue to slide, totaling $3.594 billion in January, $268 million below what the state collected in January 2023, and short of the revised benchmark by $263 million. Massachusetts state government must live within its means by reducing FY2025 spending. The days of fiscal surpluses, unprecedented increases in year-over-year spending, and flowing federal aid have come to an end.

Pioneer Statement on Decline in State Revenues

The Commonwealth’s finances have stumbled hard in recent months, and based on a report the Department of Revenue (DOR) sent to the Legislature in January, the trend shows no signs of easing. Massachusetts needs a renewed emphasis on fiscal discipline and pro-growth policies to make the state economically competitive again.

Skill-based immigration could ease labor shortage

A recent Biden administration executive order that amends the Schedule A list, which identifies occupations experiencing labor shortages and allows immigrants in those occupations to expedite their employment in the U.S., could positively impact the hiring of skilled international workers for years to come — a welcome development as the country and Massachusetts struggle to attract talent amidst a worsening labor shortage.

My Musings on Massachusetts’ Fiscal Picture

Since the start of FY2024 on July 1, 2023, the state has experienced six straight months of revenues falling short of expectations. The single biggest factor is the unprecedented growth of the state budget since FY2021. The $15 billion increase in state spending contextualizes the seemingly modest projected revenue growth of 1.6 percent for FY2024 by highlighting that the base is very inflated.

The Massachusetts Workforce: Abundant Resources, Steep Challenges

Massachusetts features a strong workforce training system with abundant resources yet faces challenges in matching jobs and applicants, training youth, and attracting sufficient numbers of skilled immigrants, according to a pair of studies from Pioneer Institute.

Pioneer Institute Statement on the State Legislature’s FY2024 Tax Relief Package

The recent advancement of a tax bill H. 4104, that is expected to be enacted by the Legislature this week after languishing for more than 20 months, puts Massachusetts taxpayers one step closer to realizing some tax relief. However, it may be too little to tackle the Commonwealth’s affordability and competitiveness challenges.

Poll: MA Voters Oppose Legislative Proposals to Change Tax Rebate Law

A strong majority of registered Massachusetts voters oppose a plan recently announced by state legislative leaders that would change the way tax rebates are distributed in Massachusetts under a state law approved by voters in 1986, according to a new poll sponsored by Pioneer Institute and the Massachusetts High Technology Council.

A Tale of Two Massachusetts: Wealth and Labor Differences Between East and West

This blog compares the income, wealth, and property values of western Massachusetts to those of eastern Massachusetts, highlighting the west's potential for growth.

Senate Tax Package Misses the Mark on Competitiveness

The Senate tax package, S.2397, is heavy on provisions that reduce the tax burden for certain taxpayers, thereby helping those that qualify for the expanded credits and deductions. The bill, however, is light on provisions that will improve the Commonwealth’s competitiveness.

Study: Immigrant Entrepreneurs Benefit N.E. Economy, Despite Facing Obstacles to Growth

BOSTON – Immigrants in Massachusetts and New England are more likely to be self-employed, but the businesses they own tend to be in different industries than those owned by the U.S. born, according to a new study published by Pioneer Institute.