Legislative leaders on Beacon Hill feel blindsided by Governor Baker’s recent announcement that, under the state’s tax cap, the Commonwealth will have to refund billions of dollars to taxpayers. However, the governor’s warning should have surprised no one.
Publicly available data released months ago foretold that a huge refund would be required. The tax cap limits the maximum allowable growth rate in state tax revenues in any fiscal year to the average growth rate of statewide wages and salaries over the three previous calendar years. According to the federal government’s Bureau of Economic Analysis, annual growth in the Commonwealth’s wages and salaries averaged 5.3 percent from 2019 through 2021. However, according to data posted June 8 by the Department of Revenue, tax revenues during the first 11 months of fiscal 2022 were already 8.4 percent above collections for all 12 months of fiscal 2021.
Those advising legislators on tax policy — watchdog groups, advocates, committee staff, academics — were either asleep at the switch or ignored by legislators. Like most other states, Massachusetts should have an in-house independent legislative fiscal policy unit charged with providing nonpartisan, unbiased, timely analysis.
The writer was at the Federal Reserve Bank of Boston for 29 years, serving as vice president, economist, and founder and first director of the Boston Fed’s New England Public Policy Center. He was also a research director or member of four Massachusetts legislative tax commissions.