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:

Herby Duverné Keeps Americans Safe & Gives Back

Welcome to JobMakers, a new, weekly podcast, produced by Pioneer Institute and The Immigrant Learning Center. Host Denzil Mohammed explores the world of risk-taking immigrants, who create new products, services and jobs in New England and across the United States. In the debut episode, Denzil talks with Herby Duverné, CEO at Windwalker Group, an award-winning small business with more than 25 years of experience in physical and cybersecurity solutions that protect and prepare companies through custom learning and training solutions.

Study: Graduated Income Tax Proponents Rely on Analyses That Exclude the Vast Majority Of “Millionaires” to Argue Their Case

Advocates for a state constitutional amendment that would apply a 4 percent surtax to households with annual earnings of more than $1 million rely heavily on the assumption that these proposed taxes will have little impact on the mobility of high earners. They cite analyses by Cornell University Associate Professor Cristobal Young, which exclude the vast majority of millionaires, according to a new study published by Pioneer Institute.

Hoover Institution’s Dr. Eric Hanushek on COVID-19, K-12 Learning Loss, & Economic Impact

0 Comments
/
This week on “The Learning Curve," Gerard and Cara talk with Dr. Eric Hanushek, the Paul and Jean Hanna Senior Fellow at Stanford University’s Hoover Institution. They discuss his research, cited by The Wall Street Journal, on learning loss due to the pandemic, especially among poor, minority, and rural students, and its impact on skills and earnings.

Report Contrasts State Government and Private Sector Employment Changes During Pandemic

Massachusetts state government employment has been virtually flat during COVID-19 even as employment in the state’s private sector workforce remains nearly 10 percent below pre-pandemic levels, according to a new study published by Pioneer Institute. The study, “Public vs. Private Employment in Massachusetts: A Tale of Two Pandemics,” questions whether it makes sense to shield public agencies from last year’s recession at the expense of taxpayers.

A wealth tax, a SCOTUS case, and a likely Mass. exodus

0 Comments
/
Op-ed in The Boston Globe: A case New Hampshire filed with the US Supreme Court last October against the Commonwealth of Massachusetts could have a huge impact on state finances nationwide. It also raises the stakes as the Massachusetts Legislature considers amending the state constitution to eliminate the state’s prohibition against a graduated income tax and to hike taxes on high earners.

Study Finds Massachusetts Graduated Income Tax May Be a “Blank Check” and Not Increase Funding for Designated Priorities

Advocates claim a proposed 4 percent surtax on high earners will raise nearly $2 billion per year for education and transportation, but similar tax hikes in other states resulted in highly discretionary rather than targeted spending, according to a new policy brief published by Pioneer Institute. That same result or worse is possible in Massachusetts because during the 2019 constitutional convention state legislators rejected — not just one, but two — proposed amendments requiring that the new revenues be directed to these purposes.

Post-Pandemic Prospects: Tech Leaders’ Prescription for Preserving a Healthy Economy

0 Comments
/
Host Joe Selvaggi talks with Chris Anderson, President of the Massachusetts High Technology Council, about the reasons why Massachusetts has a thriving tech sector, what challenges his members have faced in the pandemic, and what he sees as the most prudent path toward future prosperity in the commonwealth.

Report: Proposed Graduated Income Tax Might Not Increase State Education and Transportation Spending

While supporters of a state constitutional amendment that would impose a 4 percent tax rate hike on annual income over $1 million claim additional revenue from the surtax will fund public education and transportation needs, the amendment in no way assures that there will be new spending on these priorities. In fact, without violating the amendment, total state education and transportation funding could stay the same or even fall, according to a new review published by Pioneer Institute.

New Study Highlights Economic Fallout from California’s 2012 Tax Hike

A 2012 income and sales tax increase in California, named “Proposition 30,” stifled business activity, accelerated out-migration among the wealthy, and ultimately reduced the state’s tax base, according to a new study published by Pioneer Institute that aims to share empirical data about the impact of tax policy decisions.

Wealth Migration Trends: Remote Work Technology Empowers Workers to Live Anywhere

0 Comments
/
Host Joe Selvaggi talks with Pioneer Institute’s Andrew Mikula about his recent research into migration trends of high-income individuals, how pandemic-related technologies may accelerate that movement, and what challenges these changes present for policy makers.