As economists and other experts briefed state lawmakers on what to expect as they build next year’s budget, the word of the day was “volatile.”
After an unprecedented budget cycle last year, state budget-writers heard much more modest projections Tuesday. Massachusetts’ revenue collections rocketed up in fiscal 2022 to hit about $41 billion, 20% over the previous year — so much money that state law called for $3 billion to go back to taxpayers.
“Predicting future revenue figures can be a difficult process in normal times,” Rep. Aaron Michlewitz, the House budget chief, said at the outset of the hearing. “Given the volatile economy we find ourselves in, this will be an especially challenging endeavor. One of the toughest tasks before us will be determining a reasonable and responsible figure that the commonwealth could collect from the Fair Share Amendment that passed at the ballot this past November.”
Voters last fall approved a new, 4% surtax on the portion of income over $1 million to support education and transportation. That tax — known as the millionaire’s tax or Fair Share Amendment — kicked in on Jan. 1. Experts who testified Tuesday said the state can expect to take in at least $1 billion from that new surtax in fiscal 2024, in line with analysts’ projections during the campaign.
How much money the new tax ultimately yields, and when that money is collected, is one of a number of variables facing the lawmakers and officials under new Gov. Maura Healey who are tasked with crafting next year’s state spending plan.
Massachusetts Taxpayers Foundation President Doug Howgate described the dynamic in his written testimony by noting the “headwinds are unnerving and plentiful,” including the potential for a global recession, the war between Russia and Ukraine, inflation, the continued presence of COVID-19 and whether Congress is able to adjust the debt ceiling.
Howgate did not include revenues from the new surtax in his projection, saying there were still too many unknowns about the new tax. He recommended the state split the money from the tax into two trust funds — one for education and one for transportation — and that the amount of surtax money spent in the fiscal 2024 budget be capped at $500 million. He said building up a stockpile of that money to spend in future years guards against economic uncertainty.
“Going forward, these revenues are going to continue to be volatile, and they're going to get their most vulnerable during the toughest times, right? During recessions, things like that,” Howgate said.
Geoffrey Snyder, commissioner of the state's Department of Revenue, projected revenue collections of $39.8 billion to $41.1 billion for fiscal 2024, without counting the surtax revenue, for a growth of up to 1.3 percent over the department's forecast for this year. With surtax revenue included, Snyder projected between 3.2% and 5% growth over this year.
Evan Horowitz of the Center for State Policy Analysis at Tufts University warned budget-writers that inflation has been driving up costs across state government, telling them he projects “that the era of overflowing coffers is likely closing.”
Horowitz, too, encouraged lawmakers to use only some of the anticipated millionaire’s tax revenue in next year’s budget and steer the rest into a savings account to smooth out the spending in case of future rocky years. He projected the state would collect $1.8 billion from the tax this calendar year, but said that would be partially offset by a loss of about $500 million in income tax as wealthy residents leave the state or engage in tax avoidance.
“There’s a lot of uncertainty around millionaire’s tax revenue at this stage of its implementation, which makes it risky to commit all dollars,” Horowitz said.
