A hot real estate market, a labor shortage, and yet another budget surplus for Beacon Hill to fight over. Feels like 2022, except it isn’t.
Lionel Richie and Mr. Mister were burning up the Billboard charts. CDs, the plastic kind, were all the rage, and “Miami Vice” kept us home on Friday nights.
The year was 1986.
The “Massachusetts Miracle” was on full display under Governor Michael Dukakis, a storied economic turnaround that would dominate the headlines when he became the Democratic nominee for president two years later.
Yet here in the Commonwealth voters were restless, chafed by the legacy of “Taxachusetts” and a growing distrust that Beacon Hill would keep raising taxes to feed its spending habits. That November, a ballot measure to cap tax revenue growth won handily.
The obscure law, known as 62F, is based on a formula that tax growth does not exceed the rise in wages and salaries. It has only been triggered twice — in 1987 and again this year. Preliminary estimates that the state released on Thursday indicate taxpayers are due back close to $3 billion. An individual with taxable income of $75,000, for example, could see a return of about $250. While specifics continued to be worked out, it will be a welcome windfall for many people, amid high gas prices, soaring inflation, and rising interest rates.
All of this made me wonder what was happening in the economy in 1986 and 1987 that would have led to the passage of 62F and refunds the following year? Would it provide a window into our economy today, and how and why 62F is coming into play three decades later?
Looking over Globe headlines from the mid-1980s, I found parallels to our current situation: a hot economy on the precipice of a cooldown.
Back then, Massachusetts was in the midst of an economic comeback after many of our textile and manufacturing businesses moved to cheaper locales in the South. We found our raison d’etre in technology, powered by the brainiacs and ideas coming out of MIT and Harvard. That led to pioneering computer companies such as Digital Equipment Corp., Wang Laboratories, and Data General.
It was also “Morning in America” with Ronald Reagan in the White House cutting taxes to spur economic growth.
The year after 62F passed, the Massachusetts economy was humming and taxpayers got back $29 million, not much but it was something.
Life was good in Massachusetts until it wasn’t. Our tech giants missed out on the personal computing trend, and Silicon Valley capitalized on it. Local tech firms began to collapse, ushering in a crushing recession in 1988 that did not loosen its grip for 30 months. Our miracle felt like a mirage.
The Massachusetts economy would eventually roar back, powered by the enormous talent coming out of our universities, and a life sciences boom fueled by venture capital money and research from academic teaching hospitals.
We’ve had good years since, but none of them set off 62F. Until now. That has been a head-scratcher for Chris Anderson, president of the Massachusetts High Technology Council, the group that campaigned, alongside the Citizens for Limited Taxation, for the ballot measure in 1986.
Opponents worried the measure would tie the hands of Beacon Hill and hurt the funding of social service programs. But Anderson wonders if the law could have been better written, since it has so seldom come into play.
“Nobody could argue that this is a restrictive thing,” said Anderson. “I thought it would happen more regularly.”
(Fun aside: Anderson joined the council in 1984, when he was only 26 years old, as director of corporate communications, just as the ballot measure was getting underway. He replaced a guy named Charlie Baker, taking his desk and Wang word processor. Baker was off to get his MBA at Northwestern’s Kellogg School of Management, and well, the rest is history.)
Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, thinks it’s a fluke that 62F kicked in at all — in 1987 and today. The first time, the state was just calibrating the formula, he said, and this year was triggered by a combination of unusually high tax revenues from capital gains and business profits, inflation-fueled increases, and our emergence from COVID-19.
“It’s mostly a quirk of the pandemic,” said Horowitz. “It’s a very weird economic time and laws written for normal economic times may go a little haywire.”
By the time Beacon Hill figured out 62F would come into play this year, it was too late to rewrite a meticulously negotiated economic development and tax relief package before the formal session ended. Let that be a lesson to the Legislature: Don’t leave all the big bills to the end!
Eileen McAnneny, president of the Massachusetts Taxpayers Foundation, said the state balance sheet is strong enough for Beacon Hill to still carry out its economic development agenda. Year-over-year tax collections grew over 20 percent, and the state surplus is at an eye-popping $4.9 billion. There’s also $2.3 billion in federal relief funds that have yet to be appropriated.
“That does afford a lot of tax relief and other investment,” said McAnneny.
Times are good now, but like in the late 1980s, there’s a growing sense a slowdown is coming. Meanwhile, residents remain locked in an age-old debate over whether they are paying too much in taxes or too little. This time the pendulum has swung the other way, and in November voters will decide on a ballot initiative that would raise taxes on the wealthy to help fund spending on education and transportation.
What’s different now is that the state economy is a lot sturdier than it was during the days of the Massachusetts Miracle. No one is expecting a prolonged downturn. If anything, 62F is a throwback, a reminder of how far our economy has come.
“It’s a curiosity, a kind of a holdover from a time where we basically didn’t fully trust the government or the economy, and this was a way to serve as a guard rail,” observed Fred Breimyer, who was chief economist at State Street Corp. during much of the 1980s into the early 2000s. “Ironically, the economy over time has performed extremely well, and I think we’ve become more confident almost in ourselves.”
Jeremiah Manion of the Globe staff contributed to this report.
Shirley Leung is a Business columnist. She can be reached at email@example.com.