Can The Sales Tax 'Holiday' Survive Beacon Hill's Budget Shortfall?

June 21, 2016

A little over a week away from the start of the new fiscal year, Massachusetts lawmakers are still struggling to hash out the details of the budget, and there are some big gaps. Thanks to lower-than-expected tax collection, this year's 38-billion-dollar budget is estimated to fall more than 300-million dollars short. Next year’s budget falls in the same range, or even higher. The heads of the House and Senate Ways and Means committees have been working together to figure out next steps.

One of the biggest budget questions is the future of the state sales tax holiday. Senate President, Stan Rosenberg (D) said, “the Senate has been increasingly skeptical about whether this is a good use of 20 to25 million dollars a year. So we always review this issue at about this time. It’s on the table for discussion.” Charlie Baker both agreed that it should be a part of the conversation. But just the sales tax holiday wouldn’t be enough money, so what else should be on the table? Noah Berger, President of the Massachusetts Budget and Policy Center;  Eileen McAnney (@emcanneny), President of Massachusetts Taxpayers Foundation; and Natalie Higgins, Executive Director of Public Higher Education Network of Massachusetts  joined Adam on Tuesday night to discuss.

McAnney began by explaining the process that the state goes through to identify the amount of money available to spend. She explains, “they begin the budget process with a consensus revenue hearing; and really the purpose is to figure out the dollar amount that the state has to spend. They do that in January and so a lot has changed in those six months. Some of the assumptions they base the budget on are no longer accurate.That’s the problem- in a nutshell.”

Adam noted that sales tax revenues are where they expected it to be. Berger shares where they state is falling short is from capital gains income. Berger says, “ I think it was a mistake that the revenue estimates were more aggressive than they should have been.” He adds that back in January, the state did two things: they increased the estimate for this year and adopted a revenue growth figure for next year that had to be lowered because of tax cuts. He thinks that this was a mistake because the stock market last year performed poorly.

Adam switched gears to address the cuts in the University of Massachusetts system which includes the loss of 400 adjunct faculty jobs at UMass Boston. Higgins explains, “ There’s these collective bargaining contracts that the Governor’s office agrees upon and they weren’t funded in the last legislative session.” Higgins believes that the state needs to make a commitment to public higher education. Speaking on behalf of UMass Higgins says they are “really nervous.” The Board of Higher Education has identified that there is a degree gap. She also added that the return on investment in public higher education is very high for the students, faculty, and staff.

McAnney explained to Adam that taking money from the state’s ‘rainy day fund’ is the right way to deal with this deficit. She says, “we still are in a period of economic recovery and we want to save that [money] for when it’s truly raining.” McAnney also explained that tax increases would be very difficult because the fiscal year begins on July 1st, the Governor and the Speaker are not for new revenues, and it requires the state  to have spending reductions.

Berger said that the state should be looking at everything in the budget to make sure there aren’t any areas being over funded. He also mention the tax expenditures like the film tax credit, and others because there is no evidence that they have been effective. Also, the budget gap has been a problem for the Patrick and Romney administrations, as well. Berger added that in the 90’s the state did not have these issues, “the state cut taxes by about three billion dollars.” Berger also explained that there were cuts in education, some of them were voted on-others were not. He finds that this takes away from the important issues that require significant revenue like making higher ed more affordable, and fixing public transit.

In closing McAnney reminds the panel that the budget has more than doubled in the past fifteen years. The budget grew from 20 billion to 40 billion.  Berger also added that health care costs have soared in recent years. The healthcare system should be restructured, and he thinks this is something Governor Baker is well equipped to do.

 


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