How low can it go?
State misses revenue projections
Make it seven months. Having already made mid-year budget cuts and dimmed the outlook for tax collections through June based on six consecutive months of underwhelming receipts, the state reported yesterday that tax revenue came in below even downgraded expectations during January and that yearto-date revenue collections now trail actual collections from the same portion of last budget year.
The Department of Revenue reported collecting $3.594 billion last month — $268 million or 6.9% less than actual collections in January 2023 and $263 million or 6.8% below the administration’s revised monthly benchmark of $3.858 billion.
The Healey administration last month lowered the monthly benchmark for January from the $4.121 billion it projected for the month prior to the governor’s fiscal year 2024 adjustments.
MassFiscal, a conservative watchdog, said the millionaire’s tax is not working.
“Gov. Maura Healey is dealing with an economy she helped create. It’s safe to say the income surtax is driving wealth and resources out of the state,” said Paul Craney, MassFiscal’s spokesman. “The poor decision to endorse a ballot question that wrote into the state constitution an 80% income tax hike on some high-income earners, small business owners, home sales, and retirees is having a devastating impact.”
Since fiscal year 2024 started in July, DOR has collected $21.460 billion, which is $212 million or 1 percent less than actual collections in the same period of fiscal 2023 and $263 million or 1.2 percent less than what the Healey administration projected last month that it would have hauled in by this point in the calendar.
“January collections decreased in income tax withholding, non-withheld income tax, corporate and business tax, and ‘all other’ tax in comparison to January 2023,” Revenue Commissioner Geoffrey Snyder said. “These decreases were partially offset by an increase in sales and use tax. The decrease in nonwithheld income tax was driven by lower income tax estimated and return payments and an unfavorable increase in income tax refunds. The decrease in withholding was mainly due to typical timing factors in collections. The decrease in corporate and business tax was due to an increase in corporate refunds and a decrease in corporate estimated and return payments. The decrease in ‘all other’ tax is mostly attributable to a decrease in estate tax, a category that tends to fluctuate.”
With tax revenues running $769 million behind projections after December, the Healey administration last month slashed the year-end revenue estimate by $1 billion. Reducing the revenue estimate by $1 billion was meant to address the existing $769 million shortfall while also providing some breathing room for the second half of the budget year, when Administration and Finance Secretary Matthew Gorzkowicz said he expected additional months of belowbenchmark collections. The administration also said it thought its January actions would be enough to avoid further 9C cuts this year.
Now, after the governor cut $375 million in spending and newly tapped $625 million in non-tax revenues to account for the $1 billion revenue downgrade, the state still finds itself in a hole. The Executive Office of Administration and Finance said the administration was not making any additional budget moves in tandem with the belowbenchmark January revenue report.
January is the start of a crucial six-month period for the state’s coffers. Collections are not split evenly across the 12 months and the second half of the fiscal year (January through June) typically produces about 60 percent of the state’s annual tax revenue, officials have said. The second half of the budget year also tends to be more volatile for tax collections.
Last year, the head of the Massachusetts Taxpayers Foundation urged a cautious approach to the end of the budget year because “we know from long history that what happens in the first six months of a fiscal year doesn’t often have a lot to do with what happens in the second six months.”
One factor that could work in the state’s favor is the relative strength of the U.S. economy, which grew at a faster clip than expected in the second half of 2023. And with inflation starting to fall back to Earth and the stock market performing at or near record levels, there is a glimmer of optimism from the economy at large.
When Gov. Maura Healey made budget cuts last month, Gorzkowicz also decreased the fiscal year 2024 revenue estimate by $1 billion, from the $41.41 billion figure that he and key lawmakers agreed a year ago to $40.41 billion. Backing out $1 billion in revenue from the surtax on household income above $1 million put the revised non-surtax revenue estimate at $39.41 billion.
Since then, the year-end revenue assumption has been further reduced by about $577 million to settle at $38.834 billion (or $39.834 billion if counting surtax revenue), DOR said. The change is meant to reflect the impact of the tax relief package that Healey signed in October, a law that takes an approximately $576.8 million bite out of fiscal 2024 revenues.
This year’s costs of the package were fully covered in the budget, but the yearend tax revenue benchmark had not previously been adjusted to reflect its passage, DOR and the Mass. Taxpayers Foundation said.
DOR is due to report revenue collections for February, the least significant month remaining in fiscal year 2024, by Tuesday, March 5. The monthly benchmark for February is set at $2.018 billion, or $38 million more than what was collected in February 2023.