Is there such a thing as too much money?
That’s the paralysis analysis that’s gripping Beacon Hill.
A third year into a pandemic, the Commonwealth finds itself yet again with overflowing coffers. That’s even if an obscure law called 62F gets triggered and returns close to $3 billion to taxpayers.
There’s so much excess money – in the billions! – it can be hard to keep track of it all. For those keeping score at home, here’s a breakdown from the state:
- Budget surplus: $4.9 billion
- Rainy day fund: $6.9 billion
- Federal relief money: $2.3 billion
The surplus and rainy day funds are at record levels. According to a forthcoming analysis by The Pew Charitable Trusts, the Massachusetts “rainy day fund,” designed to help the state through bad economic times, has been growing significantly in recent years and now can cover about two months of state government spending, which is about two weeks more than the national average.
Money for 62F – which is triggered when revenue growth exceeds a recent rise in wages and salaries – would come out of the surplus fund, leaving it with about $1.9 billion.
That would still be bigger than last year’s surplus, which was nearly $1.8 billion!
All this excess money comes as voters in November decide whether to raise taxes on the wealthy by imposing an income tax surcharge for all individual earnings more than $1 million. If the ballot initiative passes, the measure is expected to generate about $1 billion annually, money that is to go towards education and transportation.
The timing is peculiar, considering that the state is awash in money. Yes, the economy is expected to slow, but as the Massachusetts Taxpayers Foundation reminded me, the state budget forecast anticipates that another $1.4 billion will be deposited in the rainy day fund in the coming year.
That would leave a balance of roughly $8.4 billion — and perhaps trigger another little-known measure that caps rainy day fund at 15 percent of budgeted revenues. The overage goes into a tax reduction fund, which the Legislature controls.
All of this makes me wonder: Is our problem really not having enough money, or that Beacon Hill can’t decide how to allocate it all in a timely fashion?
Let’s get back to how we got here, and how Massachusetts is hardly alone. Nearly every state has been reporting a budget surplus for the past two years, according to the National Association of State Budget Officers. Beating budget forecasts is a result of federal stimulus, wage growth, a strong stock market performance in 2021, and rising inflation.
If that last reason is a head scratcher, here’s why: Sales tax collections are up because prices are up.
In late July, the Legislature was close to agreeing on an economic development package that would have offered $1 billion in rebates and tax breaks to residents, as well as a slew of other investments and initiatives, but those talks collapsed when it realized 62F might kick in.
Now lawmakers are waiting on State Auditor Suzanne Bump, whose office is charged with producing an annual report in September certifying whether 62F has been triggered. Since the Legislature likes to procrastinate, members don’t seem any closer to figuring out what they might do. It doesn’t help they’re on a five-month break after adjourning the formal session at the end of July.
Yet other state houses have forged ahead decisively.
According to the Tax Foundation, a nonpartisan research group, 11 states this year have enacted individual income tax rate reductions, six have passed corporate income tax rate reductions, five suspended their tax on gasoline, and 11 are returning surplus revenue to taxpayers through rebates.
Timothy Vermeer, senior state policy analyst at Tax Foundation, said it doesn’t surprise him that Massachusetts lawmakers are still wrestling over what to do with extra cash.
“Historically, the Massachusetts Legislature would rather spend it on programs than enact broad tax reforms or even rebates,” said Vermeer.
What’s also has been on the table is whether the Legislature can make an end run on 62F and prevent it from kicking in. 62F, which was passed by ballot initiative in 1986, has only been triggered one other time.
There is an argument to be made that 62F is deeply flawed, and it’s one the Massachusetts Budget and Policy Center plans to make vociferously in the coming weeks. The progressive research group believes tax caps are poor policy and do not reflect today’s economy and budget, which funds education and health care programs at greater levels compared with the ‘80s.
62F also would offer credits to everyone who pays taxes in 2022, which means higher-income households would be in line for bigger breaks because they pay more in taxes, rather than restrict rebates to lower income households that really need the money.
But perhaps what irks Mass Budget the most is that 62F was most likely set off by accounting quirks related to the pandemic and a new business tax-credit program, according to Phineas Baxandall, Mass Budget’s senior policy analyst and advocacy director. For example, wages looked smaller and tax revenue looked bigger because billions in employment benefits did not count as income, while a new program made revenue look higher because business credits weren’t claimed the same year they were issued.
62F is “terribly designed,” said Baxandall. “If the tax cap gets triggered, it would be a weird confluence of circumstances, which has nothing to do with excess taxes ... It’s ironic that the tax relief package was derailed by tax relief.”
The Legislature should revisit 62F and could reasonably make the case that the size of rebate should be adjusted to reflect the unusual economic circumstances. But to completely ignore 62F doesn’t seem right. The law is the law.
And we already know various groups — including Citizens for Limited Taxation, Massachusetts Fiscal Alliance, the New England Legal Foundation, and Republican auditor candidate Anthony Amore — are ready to sue the state if there is an attempt to stop 62F.
I leave readers with one more food for fiscal thought, as TV ad campaigns for and against the Fair Share Amendment (aka the millionaire’s tax) heat up this fall: According to the Tax Foundation, Massachusetts is the only state in the country this year that is looking to raise income taxes.
So the central question becomes: Does Massachusetts have too much money or not enough?
Shirley Leung is a Business columnist. She can be reached at email@example.com.