Who needs a budget to have a budget battle?
Raise Up Massachusetts sure doesn’t want to wait.
The coalition of labor and community groups just sent a letter to the state Senate calling for new corporate and investment taxes. The goal: to provide enough money for crucial social services in the new fiscal year that began Wednesday.
The Legislature enters this new cycle amid an unprecedented level of fiscal uncertainty. Usually, leaders from the House and Senate would be hammering out the details of a new state budget by this point. They might even have reached an agreement. But COVID-19 hit before the House leadership could craft its proposal, essentially halting the normal budget-writing process on Beacon Hill.
No one knows how bad the budget will be in the new fiscal year. But everyone agrees it won’t be pretty. The business-backed Massachusetts Taxpayers Foundation estimates the revenue shortfall could be as much as $6 billion — nearly 20 percent less than what state leaders initially expected.
Raise Up offers up one set of solutions in its new letter — changes that are sure to get pushback from the business community. Increase the state corporate tax back up to 9.5 percent, where it sat before 2009, from the current level of 8 percent. Significantly increase a state tax on overseas profits (nicknamed “GILTI”). And raise the tax rate for “unearned income,” aka investment income from capital gains and dividends.
No budget? No problem. Raise Up suggests the Senate tack these changes on to a transportation financing bill that the House sent over in March. That bill already includes increases in the gas tax, Uber and Lyft fees, and the minimum corporate tax. (Raise Up’s progressive allies in the House also just sent a letter to the Senate, urging it to take up the House transportation bill because of the budget crisis.)
Raise Up spokesman Steve Crawford knows these tax increases likely won’t solve all of the state’s fiscal problems; the corporate tax increase might provide the biggest infusion of the three proposals, at $450 million to $525 million a year. But it’s important, he said, to start now. Cities and towns that rely on state aid, particularly for their schools, need to plan, he said. And Crawford said companies that are making money in this rough economy have a responsibility to step up and help everyone else get back on their feet.
History might seem to be on Raise Up’s side: The Massachusetts Budget and Policy Center, a left-leaning think tank, noted in a June 17 report that state lawmakers raised taxes or delayed tax reductions in each of the last three recessions, to limit painful budget cuts.
Unsurprisingly, business groups are objecting to the call for more revenue — at least right now. They say state budget writers should wait on Congress, to see what federal aid might be forthcoming. That appears to be the state Legislature’s strategy so far: Lawmakers last week passed a monthly budget to cover the costs for July, the first of what could be several “one-twelfth” budgets on Beacon Hill. Several other states are taking similar steps, playing for time with the hopes a lifeline arrives from Washington.
Legislators here face a deadline of July 31 to adjourn from formal sessions for the year. In election years like this one, all significant bills are supposed to be done by then. While not impossible, getting the budget done in time for that deadline seems highly unlikely at this point. Now rumors are circulating of a possible special session this fall — maybe after the elections — to clean up the budget mess.
New corporate taxes certainly will face resistance. Chris Anderson, president of the Massachusetts High Technology Council, said state officials should be focusing on revitalizing the battered economy, not pulling away the welcome mat from job creators in the private sector.
Any sort of budget debate without knowing the level of help from the federal government would be only a hypothetical exercise, said Eileen McAnneny, president of the taxpayers foundation. And Brooke Thomson, head of government affairs at Associated Industries of Massachusetts, said her group is urging lawmakers to be patient, and avoid disruptive tax changes at a time when many business owners are struggling.
Senator Adam Hinds, cochairman of the revenue committee, appears to side with the business community on the timing issue — at least for now. Hinds has been leading a Senate working group on state revenue since before the pandemic. That group last met in April and isn’t expected to wrap up with recommendations for several months.
Not only are state leaders waiting on Washington, Hinds said; they also need to see the results of a three-month delay in state income tax collections, since the big April 15 tax day cutoff fell during the pandemic. The new filing deadline is July 15, so any answer on that front might not be public until early August.
And Hinds said his colleagues also want to see what kind of bump in tax collections is produced by the recent resumption of business from the spring shutdowns, particularly from the hard-hit retail and hospitality sectors.
Answering these questions will also help lawmakers decide how much should be drawn from the deep well that is the state’s $3.5 billion rainy day fund.
Sooner or later, lawmakers will need to address some of these revenue questions. But Hinds said he would prefer that this tough debate only happens once. The timing is not yet right, he said, not with so much still up in the air.