January Figures $268M Below a Year Ago
The Commonwealth’s tax collections continue to slide, according to the latest numbers released from the Department of Revenue. January revenue collections totaled $3.594 billion, $268 million below what the state collected in January 2023, and short of the revised benchmark by $263 million. Year-to-date revenue is $21.46 billion, or $212 million less that year-to-date revenue in 2023 and below the Healey/Driscoll administration’s revised benchmark by $263 million — a benchmark that had already been revised downward by $1 billion.
All categories of tax revenue were lower than expected. Regular sales tax and motor vehicle excise were essentially flat, while corporate and business taxes are 8.1 percent below estimates, and withholding is down by 3.1 percent. The slide was most pronounced in individual estimated payments, which are 16.6 percent less than anticipated. This category of income includes interest, dividend, and other nonwage income typically paid by high-income earners.
While it’s too early to determine whether the revenue shortfall is the result of out-migration, 25 states have reduced income tax rates since 2021, according to the Tax Foundation, while only three raised them — California, New York, and Massachusetts. It is worth noting that the revenue decline comes on the heels of a new surtax on incomes exceeding over $1 million, advanced by lawmakers and narrowly approved by Massachusetts voters last November. It is occurring at a time of low unemployment.
Most other states are experiencing revenue growth. Ascertaining the cause of the state’s revenue slide and taking steps to reverse this trend must be a top priority. Pioneer will continue to track revenues and out-migration patterns to fully assess the decline and provide solutions to effect fiscal stability.
But the state not only has a revenue problem; as noted in a Pioneer post last week, it has a spending problem. The Massachusetts state government must tighten its belt and live within its means by reducing FY2025 spending to account for this new fiscal reality. The days of fiscal surpluses, unprecedented increases in year-over-year spending, and flowing federal aid have come to an end.