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:

Max Faingezicht on the Skills Gap & the Future of Work

This week on JobMakers, host Denzil Mohammed talks with Max Faingezicht, an immigrant who founded ThriveHive, a marketing software company for small businesses, and Telescoped, which uses remote software engineering to connect Latin American engineers with U.S. companies in need of their skills. The entrepreneurial ecosystem of Boston and Cambridge have allowed Max to achieve dreams he didn’t even know he had when he arrived. In this episode, he shares his fascinating immigration story, as well as his ideas on where workers go next.

7 Reasons to Reject the Graduated Tax and Instead Focus on Growing Jobs

Pioneer Institute's Statement before the Joint Committee on Revenue In Opposition to: HB 86 (Pages 1-4), a legislative amendment to the Constitution to provide resources for education and transportation through an additional tax on incomes in excess of one million dollars.

Study Warns Massachusetts Tax Proposal Would Deter Investment, Stifling the “Innovation Economy”

A state constitutional amendment promoted by the Massachusetts Teachers Association and the Service Employees International Union adding a 4 percent surtax to all annual income above $1 million could devastate innovative startups dependent on Boston’s financial services industry for funding, ultimately hampering the region’s recovery from the COVID-19 economic recession, according to a new study published by Pioneer Institute.

Hilda Torres Makes the Grade

This week on JobMakers, host Denzil Mohammed talks with Hilda Torres, an immigrant from Mexico who runs My Little Best Friends Early Learning Center in Malden, Massachusetts. One of the most successful businesses in the city, the center enrolls over 100 students whose parents come from more than 25 different countries. In this episode, Hilda shares how she used the tools of education, and her own grit and determination, to make her mark in the land of opportunity.

Study Shows the Adverse Effects of Graduated Income Tax Proposal on Small Businesses

The state constitutional amendment promoted by the Massachusetts Teachers Association and the Service Employees International Union to add a 4 percent surtax to all annual income above $1 million will adversely impact a significant number of pass-through businesses, ultimately slowing the Commonwealth’s economic recovery from COVID-19, according to a new study published by Pioneer Institute.

Hong Tran Goes from Refugee to Realtor

This week on JobMakers, host Denzil Mohammed talks with Hong Tran, a Worcester, Massachusetts-based realtor and small business owner who emigrated to America as an orphaned refugee from Vietnam.

Sandro Catanzaro Takes His American Dream to Mars and Back

This week on JobMakers, host Denzil Mohammed talks with Sandro Catanzaro, who started several businesses in his native Peru but had no idea he’d end up helping NASA go to Mars, or that he’d use that same technology to plan and buy video ad campaigns. Now Head of Publisher Services Strategy for Roku, which acquired the company he founded, dataxu, in 2019, Mr. Catanzaro is an emblem of ingenuity and inventiveness. His demand-side platform, device graph technology and analytics platform help accelerate Roku’s ad tech roadmap and ability to serve a wide array of advertisers. But he’s not done yet!

Study: Graduated Income Tax Proposal Fails to Protect Taxpayers from Bracket Creep

The state constitutional amendment proposed by the Service Employees International Union and the Massachusetts Teachers Association to add a 4 percent surtax to all annual income above $1 million purports to use cost-of-living-based bracket adjustments as a safeguard that will ensure only millionaires will pay. But historic income growth trends suggest that bracket creep will cause many non-millionaires to be subject to the surtax over time, according to a new study published by Pioneer Institute.

Christina Qi Goes From Welfare to Wall Street 

This week on JobMakers, Host Denzil Mohammed talks with Christina (Chi) Qi, who started a hedge fund at just 22. They discuss her background and journey, moving with her family from China to Utah, being on welfare, and then attending MIT. She went on to co-found Domeyard, a quantitative trading firm, in 2013, among the longest running high-frequency trading hedge funds in the world, and was trading up to $7 billion dollars a day. In 2019, she founded Databento, an on-demand data platform for asset managers and quantitative analysts. They discuss how being an immigrant, Asian, and a woman in the cutthroat, male-dominated world of Wall Street didn’t deter her from success.

New Study Warns Graduated Income Tax Will Harm Many Massachusetts Retirees

If passed, a constitutional amendment to impose a graduated income tax would raid the retirement plans of Massachusetts residents by pushing their owners into higher tax brackets on the sales of homes and businesses, according to a new study published by Pioneer Institute. The study, entitled “The Graduated Income Tax Trap: A retirement tax on small business owners,” aims to help the public fully understand the impact of the proposed new tax.