Pioneer Institute Statement on the Commonwealth of Massachusetts’ March Tax Revenue Collections

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Pioneer Institute Statement on the Commonwealth of Massachusetts’ March Tax Revenue Collections:

Preliminary March tax revenue collection numbers were released on Wednesday (4/3/24) by the Massachusetts Department of Revenue (DOR). The Commonwealth took in $4.065 billion in total tax receipts for the month.  This figure is $129 million or 3.3% above the current monthly benchmark – the first time this fiscal year that actual revenues exceeded estimates.

While the slight uptick is good news because it breaks an eight-month streak of declining revenues, let’s not queue up the confetti quite yet.  All major tax revenue categories other than withholding taxes are below estimates.  Withholding tax collections are likely buoyed by the worker shortage and higher salaries that workers can now command.  The weakening in other categories is troubling given stock market performance over the past year, record high housing prices that increase capital gains and the general health of the economy.

It is important to note that the tax revenue benchmark for FY2024 was revised downward in January to $39.834 billion from $40.41 billion to reflect the $576.8 million reduction in revenue from the recently enacted tax package and the decline in year-to-date tax receipts as well as the  $1 billion revenue estimate for the 4 percent income surtax.  Despite this downward revision, year-to-date revenue collections totaled $27.531 billion and fell short of the revised benchmark by $145 million.  Without the money from the income surtax, this year-over-year decline in tax collections would be greater still.

March is a month when many corporate and business taxpayers are required to make estimated payments and could be a harbinger of things to come. Both categories were below projections.  Corporate and business tax collections brought in $1.235 billion – $2 million, or 0.1%, below benchmark, and $5 million, or 0.4%, less than March 2023.

Estimated income tax payments, often called non-withholding income, that includes dividends, interest and capital gains, totaled $96 million for March.  This is $6 million, or 5.6%, below benchmark, and $0.2 million, or 0.2%, less than March 2023.

Even sales and use tax collections, at $664 million, were $26 million, or 3.8%, less than March 2023, and $5 million, or 0.8%, below benchmark despite persistent inflation that raises the cost of goods.

The catch-all category of “all other” taxes fared slightly better.  Collections for March totaled $175 million, $3 million, or 1.9%, above benchmark, but $19 million, or 10.0%, less than March 2023.

In response to these weakening revenue collections, the Healey administration implemented a hiring freeze for certain positions in the executive branch of state government.  Whether this action is enough to balance the FY2024 budget will largely be determined by whether the rebound continues with April tax collections.

One thing is certain. Unforeseen and added spending, coupled with the exhaustion of federal funds, will make FY2025 budgeting much more challenging than in recent years.  The only question is how much lawmakers will have to tighten the purse strings for FY2025.