Mass. Budget and Policy Center https://massbudget.org people • partnerships • policy Tue, 01 Dec 2020 07:14:39 +0000 en-US hourly 1 https://wordpress.org/?v=5.5.3 https://massbudget.org/wp-content/uploads/2020/08/cropped-mbpc_icon2020-1-32x32.png Mass. Budget and Policy Center https://massbudget.org 32 32 Unemployment Insurance Saved the Massachusetts Economy. How Can We Ensure It Will Be Strong for the Future? https://massbudget.org/2020/11/17/unemployment-insurance-saved-the-massachusetts-economy-how-can-we-ensure-it-will-be-strong-for-the-future/?utm_source=rss&utm_medium=rss&utm_campaign=unemployment-insurance-saved-the-massachusetts-economy-how-can-we-ensure-it-will-be-strong-for-the-future Tue, 17 Nov 2020 18:30:41 +0000 https://massbudget.org/?p=13492 Unemployment Insurance Saved the Massachusetts Economy. How Can We Ensure It Will Be Strong for the Future? Read More »

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More than any other economic program, Unemployment Insurance (UI) has helped the Massachusetts economy during the COVID-19 pandemic. UI enabled many families to remain safe at home and put food on the table when it was unsafe to go out and search for new work. It also saved us from an economic freefall in which layoffs erase consumer demand and where even workers with jobs cease spending because they are a pink slip away from financial collapse. Many Massachusetts businesses today owe their survival in part to UI sustaining customers’ demand for products and services. Unfortunately, over the past decade, Massachusetts has badly underfinanced its UI system, which is funded chiefly through a tax that employers pay based on their payroll. Even if the Commonwealth follows existing state rules that would automatically increase these required payroll contributions, it anticipates $4.8 billion in debt to the federal UI Trust Fund in 2021, when Massachusetts employers will be required to begin paying assessed interest on unpaid federal advances.

Unemployment insurance achieves a variety of important economic and social benefits. Most obviously, it replaces income for individuals and families who, due to no fault of their own, are laid off or otherwise separated from paying work. Federal and state UI payments put money in people’s pockets and help boost consumer spending at precisely the time the economy needs that boost. UI can also improve productivity as it enables workers to take the time to search for employment that matches their skills. Because job losses have disproportionally hit Black and Latinx workers, the UI system has been particularly important for supporting families in communities of color.

UI has been working as intended and federally funded enhancements to UI have been crucial in boosting its effectiveness. However, federally funded enhancements to unemployment benefits and eligibility have expired or will expire by the end of December.

There are many steps the federal government and the Commonwealth can take to strengthen UI and ensure it will better protect Massachusetts during this recession and in the future.

Unemployment Insurance Helped Save the Massachusetts Economy

Massachusetts suffered a tidal wave of job loss as a result of the pandemic. Employment fell by 23.5 percent, a drop of 874,400 workers between February and April 2020. This decline is more than the entire current labor force of eight Massachusetts counties combined. Massachusetts’ unemployment was higher than any other state in the nation in June and July, reaching 17.7 percent, a rate unprecedented since the Great Depression.

A total of $17.64 billion in unemployment payments were received by Massachusetts residents between March and September. Of this total, $12.48 billion were federally funded. Since UI benefits are taxable income, this could represent as much as $880 million in state income tax revenue.

Unemployment assistance is particularly effective at stimulating the economy during a downturn because it replaces lost income and is likely to get spent. By contrast, the $1,200 checks sent by the I.R.S. to most tax filers early in the pandemic were mostly stashed away or used to pay off past debts, especially by upper-income recipients.

Moreover, during an economic downturn the federal government typically covers half the cost of additional weeks of (“extended”) UI benefits and fully covers benefits during the current emergency. This injects much needed federal dollars into the state economy. Federal improvements to UI enacted early in the Spring have also provided tremendous support. The best-known federal enhancement to UI was an addition of $600 per week of Pandemic Unemployment Compensation (PUC), fully paid by the federal government. This benefit expired at the end of July after having injected an average of $2.14 billion a month into the Massachusetts economy since April. Indicators of poverty around the nation increased when these $600 UI benefits expired. In Massachusetts, applications for both federal food assistance (SNAP) and low-income cash benefits (TAFDC) increased dramatically in the weeks after the extra $600 in unemployment assistance expired at the end of July.

Unemployment Insurance Protected People of Color and Lower-Income Workers

 

Unemployment assistance has generally delivered support to workers who have most needed it, at least for workers in established full-time jobs. During the pandemic, UI has supported individuals and communities of color as well as lower-income workers, who have been hit hardest by the coronavirus and its economic harm.

Cities and towns with large populations of color have been hit particularly hard by job loss. Even when unemployment fell below ten percent (9.5 percent) statewide in September, the rates remained far higher in Lawrence (20.2 percent), Springfield (16.2 percent), Revere (16.1 percent), Brockton (15.1 percent), Lynn (14.4 percent), Holyoke (14.2 percent), Chelsea (14.2 percent), and Randolph (14.1 percent).

Race-based data is not available on recipients of new federal benefits for workers traditionally ineligible for UI, but for traditional state benefits, it is clear that UI benefits have been particularly important for Black and Latinx workers who are more likely to work in jobs that were hit with layoffs and furloughs in this recession. From March through the end of September 2020:

  • UI recipients were 16.1 percent Latinx, compared to 10.8 percent of the workforce.
  • At least 10.7 percent of UI recipients identified as Black, compared to 8.7 percent of the workforce.

The replacement of lost income for Black and Latinx households is particularly important to achieving equity as data show far lower levels of accumulated wealth for these families to fall back on. Examining the Greater Boston area, the Federal Reserve Bank of Boston reports that, “overall, a typical black household earns roughly 60 percent of the typical white household but has only 5-10 percent of its wealth.”

Lower-wage workers have been hit harder by job loss during the pandemic and claimants of state UI benefits have likewise tended to be the more economically vulnerable, lower-income workers. The average unemployment claimant in July 2020 had lost a wage of just $734 per week, as opposed to the $1,039 weekly wage of unemployment claimants a year earlier, which is close to the state’s median wage.

Even so, UI does not reach all workers in need. Immigrant workers who may not have been officially authorized to work both during their previous employment and when applying for benefits cannot access unemployment assistance. Operational and bureaucratic inefficiencies during the pandemic have made it particularly hard for newly-authorized workers to submit documents and have them processed in a timely manner. A report by the New York based Fiscal Policy Institute also shows that more than $366 million in unemployment insurance contributions have been paid on behalf of approximately 113,000 undocumented workers in Massachusetts over the past decade, but these workers remain unable to collect a penny of benefits through either the traditional UI system or the Pandemic Unemployment Assistance (PUA) program.

Years of Shortchanging MA’s UI Trust Fund Will Leave It Deep in Debt

 

Each state places the UI payroll contributions collected from employers in a state trust fund. The system is designed so that during times of normal economic growth, states are expected to contribute sufficiently to their state funds during good times and build up these trust funds, and then draw from them during economic downturns – when they have the greatest need of UI and the least ability to fund relief on their own. States can borrow from a federal fund if their state fund runs low during times of high unemployment. They are expected to finance their own UI trust account with sufficient funds to pay a prescribed amount of benefit costs based on past recessions.

The problem is that Massachusetts has failed to comply with these federal expectations and state policymakers have repeatedly deactivated state laws meant to keep the UI Trust Fund adequately funded. Almost every year for over two decades the Legislature has blocked automatic increases to payroll contributions. In 2014, for instance, large business groups called to freeze the increases because it was the same time as a proposed increase to the minimum wage. In 2017, a two-year freeze on UI tax increases was offered to offset a now-expired fee on businesses to help pay for costs these businesses impose on MassHealth (Medicaid). Each time, blocking the automatic UI contribution adjustment increases the amount the Trust Fund is underfunded, and increases the potential need for future increases needed to fill the gap and comply with funding rules.

To help states comply with federal expectations for building their trust funds, the federal government gave them five years to phase-in compliance incrementally, but Massachusetts did not come close to achieving the required progress in any of those years. Last year, Massachusetts’ UI trust fund balance, which stood at $1.1 billion, would have needed to reach $3.9 billion to meet expectations.

Federal law requires states like Massachusetts, that have failed to adequately fund their own state UI system, to pay interest beginning in 2021 on outstanding federal UI advances. If the Legislature continues to block automatic increases to UI payroll contributions, then Massachusetts businesses will continue to pay interest payments on the growing balance of federal advances.

In the state’s October report, the UI Trust Fund is forecast to have a negative balance of $2.4 billion by the end of this calendar year. The state borrowed $1.76 billion from the federal UI account from June through September and was expected to continue borrowing to make payments through the rest of the year.

Due to the insufficient trust fund balance, existing Massachusetts law would automatically require private employers to steeply increase their payroll contributions from an average of $544 per employee in 2020 to $866 in 2021. The state calculates this increase would yield an increase of $940 million in contributions over the approximately $1.5 billion currently anticipated for 2020. Due to high levels of unemployment, the state UI Trust Fund balance is expected to be negative $4.8 billion at the end of 2021 even with these increased contributions.

If the Legislature had not blocked automatic payroll contribution adjustments, and had ensured that the state Trust Fund complied with federal rules, our UI system still would not have been fully prepared for the unprecedented tsunami of unemployment claims in the early months of the pandemic. But following the automatic safeguards would have averted deep debt, interest payments, and steep one-year increases in payroll contributions that will soon be required to avoid insolvency.

Many Federal and State Ways to Strengthen Unemployment Insurance

 

This year has underscored how crucial it is for Massachusetts to have a strong unemployment insurance system. It enhances our economic and social resiliency. It protects against human suffering when people lose their jobs through no fault of their own. Much can be done at the state and federal level to make our unemployment insurance system more robust and effective.

At the federal level, the main thing Congress should do is restore and continue the unemployment enhancements and supports that it created in March for what was expected to be a short-term crisis. The programs should be renewed until after the economic crisis has subsided. Federal UI should be extended to undocumented workers, especially those for whom contributions have been made to the UI system. To help state government’s finances, some state debt and interest payments to the federal UI trust fund should be forgiven if steps to increase future payroll contributions are implemented.

Massachusetts should adhere to federal expectations to sufficiently fund its UI system. It should pursue additional ways to make UI more financially stable, inclusive, and efficient by:

  • Increasing the taxable wage base and indexing it to pay increases. The Massachusetts UI system levies payroll taxes only on the first $15,000 of an employee’s income. Over time, workers’ earnings increase, and payroll contributions should increase proportional to earnings to fund potential future UI benefits. As UI is still expected to replace lost income, there will be constant pressure to raise the tax rate on the same small tax base unless the base grows over time. A low taxable base amount also means that contributions on lower-income workers indirectly subsidize the UI benefits of higher-income workers and industries. This means that restaurants and other small businesses that have been severely impacted by the recession are inequitably responsible for a larger share of unemployment taxes. By contrast, Washington state’s taxable wage base is $52,700 and four other states set theirs above $40,000. Massachusetts should raise the base amount and index it, as 16 other states do. The taxable wage base could be set at the average wage or to a particular percent of that growing amount.
  • Increasing outreach, access, and public awareness of UI. Only about half of unemployed workers in Massachusetts typically receive unemployment benefits although this rate is relatively high compared to other states. The Commonwealth should dedicate resources to publicize the program, ensure that employers inform workers who depart from jobs about how to apply for benefits, prompt telephone assistance for people having trouble applying online, provide information in multiple languages, and make the application rate of the newly-unemployed a publicized performance standard. This outreach is even more critical in an economic downturn when additional federally funded benefits are available.
  • Stopping the misclassification of workers. The federal PUA benefits that expire at the end of the year and provide benefits to normally ineligible workers, have demonstrated the need to bring more workers into the UI system. Too many employers misclassify their regular workers as independent contractors or gig workers, or don’t legally recognize them at all. Massachusetts can strengthen rules to ensure businesses properly classify workers as employees. Massachusetts laws can also grant the Attorney General greater powers to enforce these laws.
  • Improving collection of data by race. The fact that 16 percent of UI recipients’ race is unknown is a serious obstacle to identifying and addressing disparate racial impacts.
  • Increasing use of “WorkShare” as an alternative to layoffs. “WorkShare” provides federally-supported relief where job losses take the form of partially reduced hours among multiple employees. It enables employers to remain connected to experienced workers who they can bring back on full time when business recovers. It allows workers to keep their jobs, as well as their medical and retirement benefits. It also takes advantage of favorable state reimbursement policies so that the Commonwealth receives greater federal funding. Studies show the employers tend to be highly satisfied with the program but few use it because they often do not know about it and the process to set it up can seem daunting. In Massachusetts, only 1.5 percent of all UI weeks were compensated through WorkShare arrangements at the end of September. This is one tenth the rate in Rhode Island. The state should redouble efforts to promote the program and make it easy to use.
  • Modernizing the Unemployment Insurance IT system. Serious problems with the UI application and processing system have slowed and denied many benefits, especially during the early months of the pandemic. Numerous glitches continue to cause delays and erroneous denials. Websites can be optimized for mobile users so applicants can upload documents from their phone and greater access should be accorded to limited English proficient claimants, individuals unfamiliar with technology, and individuals with disabilities. The recent IT bond Act, passed as an emergency bill in August, authorized funds to plan, purchase, and implement an updated unemployment IT system. The Administration should convene and engage the advisory panel created by this act and heed the input of stakeholders, and then promptly appropriate the funds to make the system more accessible and user-friendly.
  • Eliminating features that have a disparate negative effect on low-wage workers. Several formulas embedded in the UI benefit system deny access to workers who earn low wages, including reducing the duration of benefits and penalizing workers whose wages fluctuate through no fault of their own.  The Legislature’s recent elimination of the 50 percent cap of total benefits when computing the $25-per-dependent additional allowance, which will begin 18 months after the Governor’s state of emergency ends, was a good first step in this direction. The allowance could also be updated for inflation.

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Statement on Senate Ways and Means Committee’s FY 2021 Budget https://massbudget.org/2020/11/12/statement-on-senate-ways-and-means-committees-fy-2021-budget/?utm_source=rss&utm_medium=rss&utm_campaign=statement-on-senate-ways-and-means-committees-fy-2021-budget Thu, 12 Nov 2020 21:26:48 +0000 https://massbudget.org/?p=12641

“State leaders have made it clear that they do not want to raise broad-based taxes this fiscal year. We agree that now is not the time to raise taxes on low and middle-income families and small businesses. As I’ve said time and again, we can and should raise taxes on wealthy households and profitable corporations that have done very well before and during this pandemic.

State leaders have done their job of balancing the budget by using one-time sources like our state’s Rainy Day Fund while at the same time trying to minimize cuts to services and give modest boosts where they can. But, while lots of little cuts might spread the pain of an under-resourced budget, this is not sustainable. Nor does it meet the extreme needs of our students trying to get an education during this pandemic; of renters and homeowners facing eviction or foreclosure; or of people who cannot put food on the table.

Let me be clear: funding services at last year’s levels is not a win. Keeping up with inflation is not a win.

Why, during this most dire time of need, would we choose to do the bare minimum for our communities? Isn’t this exactly the right time to step forward to show who we are as a Commonwealth and how we can come together for each other in the most difficult times?

A better budget is possible — one that allows every member of our Commonwealth to get through this crisis.”

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Raising Rates on Unearned Income: An Equitable Way to Avoid Cuts and Support a Robust and Just Recovery https://massbudget.org/2020/11/05/raising-rates-on-unearned-income-an-equitable-way-to-avoid-cuts-and-support-a-robust-and-just-recovery/?utm_source=rss&utm_medium=rss&utm_campaign=raising-rates-on-unearned-income-an-equitable-way-to-avoid-cuts-and-support-a-robust-and-just-recovery Thu, 05 Nov 2020 16:51:23 +0000 https://massbudget.org/?p=12036 Raising Rates on Unearned Income: An Equitable Way to Avoid Cuts and Support a Robust and Just Recovery Read More »

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Snapshot of Findings

  • Each percentage point increase in the rates applied to most unearned income could raise about $465 million a year during periods of strong economic and/or stock market performance.
  • Because unearned income flows overwhelmingly to high-income, white households, raising additional revenue from unearned income would support economic and racial justice.
  • The best path forward for Massachusetts is to avoid budget cuts and instead make needed investments to speed recovery, funded with tax increases on high-income households and profitable corporations.
  • A rate increase can be coupled to an exemption for seniors/disabled persons. This would reduce net revenue gains but increase the overall progressivity.
  • Revenue from unearned income taxes can fluctuate significantly, related to economic and stock market performance.

For each one percentage point increase in the state tax rates applied to unearned income, the Commonwealth could raise roughly $465 million a year to help fund a more economically just, robust, and racially equitable recovery. As is now clear, low-income communities and communities of color have been hurt far more deeply by the COVID-19 pandemic than wealthier and whiter communities—both in terms of health impacts and the growing economic fallout. As a Commonwealth, we must respond to these intertwined health and economic crises in ways that acknowledge and correct for these deep-seated and longstanding inequities. Raising additional revenue through rate increases on unearned income would help the Commonwealth address the immediate harms of the pandemic, as well as make the investments that will speed us toward a just and robust recovery.

What is “unearned income”?

Broadly speaking, the income people receive can be divided into two categories, “earned income” and “unearned income.” Earned income typically comes in the form of wages and/or salaries directly connected to the daily work that people perform. Unearned income comes from the ownership and/or sale of various assets. For example, unearned income includes bank interest; dividends paid by corporations to their shareholders; rental income from real estate holdings; and “capital gains,” the profit realized from the sale of stocks, real estate, artwork and other assets. (Capital gains are further divided into two categories: 1) long-term capital gains, which come from the sale of assets held for more than one year, and 2) short-term capital gains, which come from the sale of assets held for one year or less.)

How much revenue would the Commonwealth generate by raising tax rates on unearned income?

Currently, most unearned income is taxed at the same rate as wage and salary income (i.e., earned income): 5.0 percent.1 This 5.0 percent rate is applied to long-term capital gains, as well as to interest and dividend income. As recently as the late 1990s, however, dividend income was taxed at a rate of 12 percent, twice the rate applied to earned income at that time. And still today, short-term capital gains (from assets held less than one year) are taxed at 12 percent.

Raising the 5.0 percent rate applied to most unearned income could generate significant amounts of additional revenue for the Commonwealth. Each one percentage point increase in the rate applied to long-term capital gains would generate approximately $365 million a year during periods of strong economic and/or stock market performance.2 Each one percentage point increase in the rate applied to dividend and interest income would generate a combined total of approximately $100 million a year in additional revenue during periods of strong economic and/or stock market performance.3

Economic downturns or periods of weak stock market performance likely would decrease the amount of unearned income collected by Massachusetts residents and hence the amount of tax revenue collected by the Commonwealth from this source. (The volatility of revenues derived from taxing unearned income is discussed in more detail, below.)

Raising tax rates on unearned income would support economic and racial justice in the Commonwealth

Generating additional revenue by increasing the tax rates applied to unearned income is a highly progressive policy option, one that supports both economic and racial equity. Additional revenue would come overwhelmingly from high-income, white households. Taken as a whole, Massachusetts’ state and local tax system is regressive: low- and middle-income households pay a much larger share of their income in state and local taxes than high-income households do. While the effects would be modest, raising rates on unearned income would help turn this upside-down tax system right-side up.

Were unearned income taxed at a 9 percent rate, for example, it would be only those households with the highest one percent of incomes (i.e., those households with incomes above $776,000 a year and which, as a group, average over $3.0 million a year) that would see any substantial increase in their effective tax rate (i.e., the share of their household income paid toward state and local taxes). The highest-income households would see an increase in their effective tax rate of 1.3 percentage points. Even with this increase, however, the effective tax rate on these highest-income households still would be well below the effective rates paid by other Massachusetts households.

 

There is a straightforward reason why tax increases on unearned income primarily affect the highest-income households. Unearned income comes from accumulated wealth. Wealth in the U.S. is distributed extremely unequally – even more unequally than income. The richest 1 percent of U.S. households own over 30 percent of total national wealth, while the richest 10 percent own almost 70 percent of total national wealth. More than half of all corporate stock and mutual fund shares are held by the nation’s wealthiest 1 percent; the bottom 90 percent of the population holds less than 12 percent of this total.

Close to 85 percent of U.S. national wealth likewise is held by white households. Due to centuries of systemic racism, people of color have been excluded from economic opportunities, including opportunities to grow their incomes and to build wealth. As a result, today U.S. median white household wealth is 41 times that of median Black household wealth and 22 times that of median Latinx household wealth.4

 

Given that the sources of unearned income are so concentrated in the hands of a few, very rich, mostly white households, it is not surprising that a tax increase on unearned income would fall primarily on these same households. Such an increase would produce greater tax fairness among income and racial groups, helping correct the current imbalances in our tax system and our society more broadly.

How would seniors be affected by a rate increase on unearned income?

Some seniors and people with disabilities may rely more heavily on investment income than most other taxpayers and, in many cases, may have fewer options for balancing their household budgets in order to offset any tax increase (for example, by increasing wage or salary income, or reducing living expenses). Given this, lawmakers could include an exemption for low- and moderate-income seniors and persons with disabilities when raising tax rates on unearned income. Such an exemption could prevent most low- and moderate-income seniors and disabled persons from seeing any meaningful increase in their tax bill – and in fact could deliver a tax reduction to many such taxpayers.5

A senior/disabled exemption on unearned income, however, would reduce the amount of revenue the Commonwealth would gain from any rate increases on unearned income. Setting income limits on eligibility for these exemptions (i.e., means-testing) would reduce significantly the amount of revenue lost to the exemption. For example, if only those seniors or disabled persons with annual incomes below $40,000 ($80,000 for those who are married and filing jointly), from all income sources, were eligible for the exemption on unearned income, this would reduce the total exemption costs by roughly 75-80 percent. Such income limits also would improve the overall progressivity of the exemption, focusing the tax benefits on low- and moderate-income households. The following are examples of the approximate revenue reductions that could be expected at different exemption levels:6

Revenue Loss with Senior/Disabled Exemption
Exemption Amount 6% Rate7% Rate8% Rate9% Rate
$10,000 ($20,000 for joint filers) exemptionAll$106M$108M$111M$113M
Means-tested$24M$25M$27M$28M
$20,000 ($40,000 for joint filers) exemptionAll$172M$178M$183M$189M
Means-tested$34M$37M$40M$43M
$30,000 ($60,000 for joint filers) exemptionAll$213M$220M$226M$233M
Means-tested$35M$38M$40M$43M

Does the volatility of unearned income make it a poor revenue source?

Unearned income is a “volatile” revenue source, meaning that income from stocks and other capital assets, as well as dividend and interest income, can fluctuate significantly within a very short time frame. These fluctuations typically follow the ups and downs of the economy. When the economy and stock markets are booming, a large amount of unearned income will flow to a subset of Massachusetts residents. During economic downturns (i.e., recessions), that flow typically will slow significantly and will take several years to return to prior highs. This pattern has not held during the current, pandemic-induced recession – while the real economy, by many measures, has been in worse shape than at any time since the Great Depression, stock markets are hovering at near-record highs.

Looking at the dot.com recession of 2001, Massachusetts residents’ income from interest fell by about 40 percent, ordinary dividend income fell by roughly 20 percent, and capital gains income fell by about 40 percent. With the exception of interest income, each of these types of unearned income returned to its earlier, inflation-adjusted high-water mark within two or three years.7 (Interest income took five years to do so.) The Great Recession is a more recent and more extreme example of unearned income volatility. Massachusetts residents’ income from ordinary dividends fell by over one-third, income from interest fell by more than 70 percent, and capital gains income fell by more than 75 percent.8 In this case, the return to former, inflation-adjusted highs for dividends and capital gains income took much longer: a full 10 years.9 (Interest income has yet to return to anything like its earlier highs.)

 

This volatility does not make unearned income a poor source from which to draw state tax revenue. Instead, it simply means that lawmakers must factor this volatility into their revenue expectations and budgeting practices. For taxes on capital gains – the largest source of tax revenue collected from unearned income by the Commonwealth – there already is a mechanism in place to help manage this volatility. Each year, capital gains collections that exceed a pre-determined threshold amount (currently about $1.3 billion) must be deposited into the state’s “rainy day fund.”10 These dollars then can be used to fill budget gaps during future lean years (i.e., recessions), when revenues from capital gains and other tax sources fall short of expectations.

How would an increase in the tax rate on unearned income affect Massachusetts’ tax ranking relative to other states?

Were Massachusetts, for example, to raise the tax rate on unearned income by four percentage points, this would create a top marginal tax rates of 9.0 percent. This would place Massachusetts in the company of eight other states with similar or higher top rates. (Notably, however, in these other states, the top marginal rates apply to all forms of taxable personal income, not just to unearned income.) These states include New York (which has an additional local income tax that raises the top rate by another 3.876 percentage points in New York City), New Jersey, Vermont, Minnesota, Iowa, Hawaii, California, Oregon and the District of Columbia. Several of these states have rates close to 10 or 11 percent, and one (California) has a top rate above 13 percent. Applying relatively high, top tax rates to high-income households would put Massachusetts in good company: a recent study comparing states’ economic performance over the last decade found that states with high top rates fared considerably better than those with no income tax at all.

 

Other studies meanwhile continue to debunk the persistent myth of “tax flight” by high-income households as an inevitable response to higher state tax levels. Instead, several notably high-tax states saw a disproportionate share of growth of the total U.S. millionaire and half-millionaire populations from 2017 to 2018. As one researcher summarizes, “Top earners have already found success and typically choose where to live based off family and business connections and quality of life, not differences in tax rates that have no direct bearing on their standard of living.”11

Conclusion

Today, Massachusetts families are confronted with profound health and economic challenges. These near-term challenges compound the challenges created by decades of underinvestment in our public systems, our communities and our people. This is especially true for many communities of color, which have suffered disproportionately both from the COVID pandemic and from centuries of economic exclusion driven by deep-rooted, systemic racism. Raising the tax rates on unearned income is one good option for generating the additional revenue the state needs now – and will continue to need in the future if we are to build a prosperous and just Commonwealth.

Appendix A – It makes good sense to generate new revenue from a tax increase on unearned income, especially during a recession.

 

As some 90 Massachusetts economists made clear in a letter they delivered to state lawmakers in May, the most harmful approach lawmakers could take at present is one of state budget cuts and under-investment. While the economists note that a failure to properly care for hard-hit communities would be morally unacceptable, their letter’s focus is the underlying economic logic for avoiding budget cuts.

As the economists explain, an austerity approach is precisely the wrong medicine to apply during a recession. When consumers are losing jobs and spending less – thus causing further job losses and setting in motion a downward economic spiral – the federal and state governments must short-circuit this spiral by shoring up economic activity.

How does government do this? By spending more, not less, to keep people employed, consumers buying goods and services, and the economy moving. And how do we pay for this necessary investment in our state’s economic health? As the economists make clear, the best state source for the required revenue is increased taxes on profitable corporations and high-income households. For the households and businesses that have prospered over the last decade and more – and which continue to thrive even during the pandemic – the necessary tax increases represent a relatively small share of their total income. This – along with their ability to draw on savings – allows them to maintain much of their own, pre-pandemic spending, while also supporting state efforts to preserve the health of the overall economy.

This same economic logic has been presented by many others, including Nobel laureate economists Joseph Stiglitz, in a recent op-ed to the New York Times, and Paul Krugman in a separate New York Times op-ed from 2019.

Moreover, the alternative to generating additional taxes is not simply maintaining a satisfactory status quo. Instead, the alternative is to underfund crucial services in the midst of a global pandemic and thereafter to continue a decades-long practice of under-investing in the systems – our education and transportation systems being prime examples – upon which a robust and just recovery will be built. Progressive tax increases will prevent suffering in the near-term and unlock our Commonwealth’s potential over the long-term.

 

Appendix B – Why should the Commonwealth apply higher tax rates to unearned income?

 

There are many compelling reasons for applying higher tax rates to the forms of income that flow overwhelmingly to the highest-income households.

At a gut-level, most Americans share a sort of reverence for hard work, believing it should be respected and rewarded in ways that wealth – particularly inherited wealth – should not be. There is the further, commonsense argument that those who have profited most from our social and economic systems have a special interest in and responsibility to pay for the maintenance and growth of these systems – especially during periods of crisis, when much of the population is hard-pressed to make ends meet.

Less philosophically, there is the practical challenge that, as a group, the wealthy substantially under-report their taxable income from unearned sources, and as a result under-pay the taxes they owe on their unearned income.12 Exacerbating the problems of revenue loss from unearned income, federal tax laws provide numerous tax breaks for these forms of income, which further reduces collections at both the federal and state levels.

The most obvious of these many federal tax breaks is the lower tax rates applied to unearned income.13 This preferential, federal tax treatment – while out of step with most Americans’ values and expectations – offers states an opportunity: by raising state-level rates on unearned income, state governments can generate significant amounts of highly progressive revenue, while only nudging the overall, federal-plus-state rates on unearned income toward parity with the rates applied to earned income.

It also is worth noting that the households that would pay significantly more to the Commonwealth if state tax rates on unearned income were raised are the same households that recently received massive tax cuts at the federal level, through the 2017 Tax Cuts and Jobs Act (TCJA). On average, the richest one percent of Massachusetts taxpayers (with average incomes exceeding $3 million per year) will see an annual federal tax cut from the TCJA worth over $60,000 in 2020 alone.14 Those in the next highest-income four percent of households (with average incomes of $475,000 per year) typically will receive a tax cut worth more than $13,000 a year from the TCJA. This is yet another reason why these few, very fortunate households are well-positioned to absorb higher state-level taxes.

 

Endnotes

 

1An exception to this is that short-term capital gains (from assets held less than one year) are taxed at a rate of 12 percent.

2Estimate produced by the Institute on Taxation and Economic Policy (ITEP), upon request from MassBudget. Using the most current national IRS Statistics of Income (SOI) data, ITEP assumes that 84 percent of total capital gains income comes from long-term capital gains and that 16 percent comes from short-term capital gains. Incorporating those shares into their model, ITEP estimates that a one percentage point increase in the long-term capital gains rate in Massachusetts would produce a gain in annual revenue of $364 million.

3Estimate produced by the Institute on Taxation and Economic Policy (ITEP), upon request from MassBudget. The combined total revenue gain from raising rates by one percentage point on long-term capital gains and dividend and interest income would be approximately $465 million per year, during periods of strong economic and/or stock market performance.

4Income and wealth disparities are more extreme in the U.S. – and more persistent across generations – than in most developed (OECD – Organization for Economic Co-operation and Development) countries. See, Batchelder & Kamin, “Taxing the Rich: Issues and Options”, Sept. 11, 2019: http://digamoo.free.fr/batchelder919.pdf. As the authors summarize (pg. 2), “Thus, to an unusually large extent in the U.S., economic disparities between individuals reflect the luck of one’s birth and systemic discrimination, not hard work.”

For further discussion of income and stock ownership disparities by racial group, see MassBudget’s report, “Supporting Racial Equity and a Robust Recovery with a Corporate Income Tax Rate Increase.”

5Currently, Massachusetts does not provide an exemption for unearned income. As a result, seniors and persons with disabilities – like other filers – are likely to pay tax on some or all of this income. A senior/disabled persons exemption could remove from taxation a significant share of these filers’ overall income, income which currently is subject to state income taxes. As a result, many of these taxpayers could see a decline in their state income tax bill.

6Whenever unearned income declined (for example, during a recession) – and tax collections on unearned income therefore declined as well – there would be a roughly proportional decline in the cost of these exemptions.

7MassBudget analysis of Internal Revenue Service, Statistics of Income (IRS SOI) data. The periods from pre-recession peak to a return to those peak levels was as follows: 2001 to 2003 for dividends, 2001 to 2006 for interest income, and 2001 to 2004 for capital gains. Analysis is based on inflation adjusted income figures. See IRS SOI tables: https://www.irs.gov/statistics/soi-tax-stats-historic-table-2

8MassBudget analysis of Internal Revenue Service, Statistics of Income (IRS SOI) data. The periods from pre-recession peak to a return to those peak levels was as follows: 2007 thru 2009 for both dividends and capital gains. Income from interest fell sharply and has yet to return to earlier highs. Analysis is based on inflation adjusted income figures. See IRS SOI tables: https://www.irs.gov/statistics/soi-tax-stats-historic-table-2

9As of 2018 – the most recent data available from the IRS SOI – Massachusetts interest income had yet to return to previous highs reached in 2007.

10The threshold for Fiscal Year 2020 was $1.26 billion. See the Department of Revenue FY21 Revenue Briefing Book, pg. 24: https://www.mass.gov/doc/briefing-book-fy2021-consensus-revenue-estimate-hearing/download

11Institute on Taxation and Economic Policy, Carl Davis, Just Taxes (blog), September 9th, 2020: https://itep.org/millionaire-population-swells-in-blue-states-despite-migration-fearmongering/

12See also Center on Budget and Policy Priorities report, “Substantial Income of Wealthy Households Escapes Annual Taxation or Enjoys Special Tax Breaks”, November 13, 2019: https://www.cbpp.org/research/federal-tax/substantial-income-of-wealthy-households-escapes-annual-taxation-or-enjoys

13For a discussion of specific rates, see Center on Budget and Policy Priorities report, “Substantial Income of Wealthy Households Escapes Annual Taxation or Enjoys Special Tax Breaks”, November 13, 2019 (pgs. 12-15): https://www.cbpp.org/sites/default/files/atoms/files/11-13-19tax.pdf

14See Institute on Taxation and Economic Policy, “TCJA by the Numbers, 2020” (refer to interactive map of U.S.): https://itep.org/tcja-2020/

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FY 2021 Budget & Tax Options https://massbudget.org/2020/10/29/fy-2021-budget-tax-options/?utm_source=rss&utm_medium=rss&utm_campaign=fy-2021-budget-tax-options Thu, 29 Oct 2020 17:38:38 +0000 https://massbudget.org/?p=12200 FY 2021 Budget & Tax Options Read More »

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Two weeks ago, the Executive Office of Administration and Finance (ANF) provided updated revenue projections for the current fiscal year (FY21). ANF now estimates an FY21 tax revenue shortfall of $3.6 billion. This new estimate resets the baseline from which the Governor and Legislature must build their respective FY21 budget proposals.

Drawing on a variety of one-time revenue sources, including the state’s “rainy day” fund, the Governor proposes funding most program areas at levels similar to the levels provided in FY20. One notable exception is the state’s MassHealth program, for which the Commonwealth has received additional federal reimbursements, allowing the Governor to extend care to a growing number of people in need.

Overall, the Governor adopts an approach that could be described as “try to minimize harms to the most vulnerable.” While a commendable guiding principle, a budget built from a mix (in most areas) of near-level funding and limited cuts necessarily imposes significant harm.

Ultimately, the Governor’s FY21 budget does not rise to the challenges of the moment we are in. It will not fill the many holes created by rising needs in the face of the COVID pandemic. It will not spur our economy toward a rapid, robust and just recovery. And it certainly will not correct for decades of deep underinvestment in the structures that are the bedrock of our collective wellbeing and our future prosperity – things like education, transportation, and housing. In the short-term and the long-term, the Governor’s austerity budget is a losing proposition.

Fortunately, we have an alternative. Instead of harmful austerity, we can choose to invest fully in our people and our future, to build a thriving and equitable Commonwealth. How do we do that? By embracing the course recommended by over 90 Massachusetts economists in a letter delivered to lawmakers at the end of May: raise new revenue from high-income households and profitable corporations.

Massachusetts is a wealthy state, home to many high-income households and large corporations that are doing very well, even during the pandemic. The roughly 20 billionaires, for example, who make their homes and their fortunes here in the Bay State have seen their collective wealth rise by over $17 billion since last mid-March when COVID sent unemployment rates for regular people soaring.  And while many businesses – especially smaller, brick-and-mortar businesses – have been hard hit, some corporations are turning record profits. It is more than reasonable to ask those who are prospering in our Commonwealth to contribute more, so everyone can survive and eventually thrive.

Here are just a few of the many options lawmakers have for raising substantial, additional, progressive revenue here in the Commonwealth:

  • Let’s restore the tax on corporate profits to the pre-2010 level of 9.5 percent, up from the current 8.0 percent. This is a change that would affect only those corporations that are making a profit. This change could raise some $375 – 500 million a year.
  • Let’s rejoin the federal government and many other states in taxing the profits that multinational corporations are generating here in the U.S., but which they are shifting onto the books of their subsidiaries in offshore tax havens as a way to avoid paying U.S. taxes. The federal government already identifies and taxes this Global Intangible Low Taxed Income (GILTI), and Massachusetts can recouple easily to the relevant federal provision. This change could raise some $200 – 400 million a year.
  • Let’s raise the tax rates on unearned income. This includes income from bank interest, dividends paid to corporate shareholders, and capital gains received from the sale of stocks, bonds, real estate, artwork and more. Unearned income flows overwhelmingly to high-income, white households. Currently, unearned income is taxed at the same 5.0 percent rate as wage and salary income. During periods of strong economic and/or stock market performance, this change could raise some $465 million a year for each percentage point increase in the relevant rates. (Stay tuned for a soon-to-be-released MassBudget report on taxing unearned income.)
  • Let’s prevent the scheduled January 1, 2021 return of the state charitable deduction, a tax break that would deliver its benefits overwhelmingly to the very highest-income households in the state. Dwarfed by the much larger federal charitable deduction, an additional state deduction is unlikely to affect meaningfully the amounts people choose to give to charity. This change would prevent the Commonwealth from losing some $300 million a year in revenue.
  • Let’s eliminate ineffective, costly corporate tax breaks – like the single sales factor (SSF) tax break provided to mutual fund companies. This tax break allows mutual fund companies operating in Massachusetts to use a special formula for calculating how much of their global profits will be taxed by the Commonwealth. Businesses in most other industries do not get to use this special formula. This change could prevent the Commonwealth from losing some $180 million a year in revenue.

Working with these and other revenues, lawmakers can build a more complete FY21 budget, one that prevents harm to the most vulnerable, avoids the austerity trap, and unlocks the full potential of people throughout the Commonwealth.

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Making sense of the Governor’s revised FY 2021 budget proposal https://massbudget.org/2020/10/23/fy2021govproposal/?utm_source=rss&utm_medium=rss&utm_campaign=fy2021govproposal Fri, 23 Oct 2020 15:15:33 +0000 https://massbudget.org/?p=12069

This was a presentation to a coalition of policy advocates, social service providers, and academics, to give members an overview of the Baker Administration’s revised FY 2021 budget and what it means for the programs they care about.

View the full presentation here.

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Envisioning Equity Part III: Reimagining Our Criminal Legal System https://massbudget.org/2020/10/21/envisioning-equity-part-iii-reimagining-our-criminal-legal-system/?utm_source=rss&utm_medium=rss&utm_campaign=envisioning-equity-part-iii-reimagining-our-criminal-legal-system Wed, 21 Oct 2020 15:10:05 +0000 https://massbudget.org/?p=12045 Envisioning Equity Part III: Reimagining Our Criminal Legal System Read More »

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For more information, view the presentation slides here.

 

 

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The Envisioning Equity Series:

Fall 2020 – MassBudget hosted a series of community conversations examining how our state budget can help build economic and racial justice in Massachusetts. The three sessions looked at K-12 education (Sept 22), housing (Oct 6) and the criminal legal system (Oct 20).

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Statement on Governor Baker’s Revised FY 2021 Budget Recommendation https://massbudget.org/2020/10/14/statement-on-governor-bakers-revised-fy-2021-budget-recommendation/?utm_source=rss&utm_medium=rss&utm_campaign=statement-on-governor-bakers-revised-fy-2021-budget-recommendation Wed, 14 Oct 2020 13:35:02 +0000 https://massbudget.org/?p=12012
“The Baker Administration has released a new budget proposal for the current fiscal year, revising revenue projections down by billions of dollars ($3.6 billion). While the Administration has expressed its commitment to preventing cuts for core services, its budget fails to make the swift and at-scale policy solutions needed to support the hundreds of thousands of families in our state that can’t afford to put food on their table or keep their families safe and housed.

MassBudget has consistently shown that many services, like housing supports, cash assistance for low-income families and those who are unemployed, access to safe and dependable childcare, and assistance for K-12 districts educating our lowest-income students, continue to be under-resourced.

The proposed delay of the state charitable deduction is a start, but it will not meet the growing needs during this economic downturn. The Governor said he will veto any tax increases the Legislature proposes — this will not help us fully address the urgent needs of communities, much less invest in an equitable and strong recovery. As over 90 economists wrote to state leaders, raising revenue is preferable to budget cuts during an economic downturn because it keeps money flowing through the local economy. And as our research has shown, we have raised revenue during the last several recessions to stave off damaging budget cuts.

The Baker Administration and the Legislature must act today on measures that will ask profitable corporations and wealthy individuals to pay more in revenue to help ensure that our people, small businesses, and communities have the resources they need to weather the pandemic. These measures can include:
– Restoring the tax rates applied to corporate income to pre-2010 levels (8.0% to 9.5%): This will raise approximately $375-$500 million each year.
– Recoupling the Massachusetts tax code to the federal Global Intangible Low-Taxed Income (GILTI) provision: Based on MassBudget’s work with national experts this could raise over $200 million each year.
– Raising tax rates applied to unearned income: Each 1 percentage point increase would generate approximately $400 million each year during periods of strong economic growth and/or strong stock market performance.
– Eliminating single sales factor apportionment (SSF) for mutual fund service providers: Based on historical data from DOR, MassBudget estimates that elimination of SSF for mutual fund companies could save roughly $180 million in FY 2021.”
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Envisioning Equity Part II: Housing to Build a Just Recovery https://massbudget.org/2020/10/07/envisioning-equity-part-ii-housing-to-build-a-just-recovery/?utm_source=rss&utm_medium=rss&utm_campaign=envisioning-equity-part-ii-housing-to-build-a-just-recovery Wed, 07 Oct 2020 19:12:40 +0000 https://massbudget.org/?p=11434 ]]>

 

Learn more about current legislation discussed in this conversation:

Guaranteed Housing Stability Act (H.5018) would ban evictions due to COVID-19-related nonpayment, stabilize rents, prevent “no fault” evictions, enable homeowners to defer their mortgage payments until the end of their loans, and establish a relief fund for small landlords.
An Act providing for climate change adaptation infrastructure and affordable housing investments in the Commonwealth (HD.5275/SD.3056) would double the deeds excise tax on home purchases and dedicate half the new revenue to climate mitigation and resiliency and half toward housing affordability.
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Testimony for the House and Senate Ways and Means Committees, the Joint Committee on Revenue, and the Executive Office of Administration and Finance Economic Roundtable https://massbudget.org/2020/10/07/oct-7-2020-economic-roundtable-testimony/?utm_source=rss&utm_medium=rss&utm_campaign=oct-7-2020-economic-roundtable-testimony Wed, 07 Oct 2020 17:11:25 +0000 https://massbudget.org/?p=11384 Thank you Chairman Michlewitz, Chairman Rodrigues and Secretary Heffernan for the invitation to participate in this 2nd economic roundtable to discuss the continuing fiscal implications of the coronavirus (COVID-19) pandemic on the Commonwealth of Massachusetts.

MassBudget is a leading think tank advancing equitable policy solutions that create an inclusive, thriving Commonwealth.

THERE IS DANGER AHEAD as we move into the next several years. The public goods we rely on for our health care, to educate our young people, to house people, to ensure we have clean air and water, to support people when they need it most, and more — may be in great jeopardy.

We’re clearly in a budget crisis. Which is extremely troubling at this time, when we need real, comprehensive relief for families and individuals — so many of our neighbors, young and old, are struggling with accessing basic necessities and keeping healthy and well.

Our Commonwealth’s budget – how we raise revenue through taxes and fees, and how we spend that revenue – is the clearest picture of our shared values. Considering the revenue side picture is crucial, but the other side of the ledger is just, if not more important.

As you are keenly aware, the state budget is one of the most consequential pieces of legislation passed in the State House. Every year, tens of billions of dollars are allocated to invest in helping people.

These equitable investments are critical, especially at times of extreme hardship. We need to:

  • Invest in policies and programs that bring collective well-being and joy.
  • Divest from what’s harming communities.

We need an antiracist budget that invests in communities that have been ignored and intentionally harmed for far too long, especially during economic downturns like what we are currently experiencing.

This pandemic has shown how little cushion many of our communities have to weather this crisis. Even before the pandemic, Massachusetts had vast divides — divides that fall along the lines of race and class. For a state with vast riches and access to world class educational, medical and other resources, these incredible advantages are not equitably shared or enjoyed.

The Legislature and the Governor have acknowledged this and were making significant strides with the transportation funding bill and the passage of the Student Opportunity Act. Both would have made significant investments in our public goods. We’re at a much different place today.

While it may seem that our economy is improving slightly, things are mostly getting better for those at the top and some in the middle and deteriorating for those at the bottom.

I’ll spend my time today, outlining the severity of the overall economic and budgetary situation in our state and offer several policy solutions.


We can only begin to get our economy and society back on track by making sure that systems are in place to ensure that everyone has the basics (food, shelter, medical care) for themselves and their families.

Currently in Massachusetts we are seeing:

  • 383,000 households in Massachusetts reported not having enough food in the past 7 days
  • 850,000 people on SNAP — that’s 1 in 9 Massachusetts residents (a sharp COVID increase)
  • Hundreds of thousands of people (226,000) did not pay last month’s rent on time or deferred the payment.
  • The Commonwealth’s 11.3 percent unemployment rate means 1 in 9 workers are unable to find work — this impacts their families and communities.
  • There are far more pronounced job losses in many Gateway cities with large populations of people of color. Lawrence, for instance, has a 23 percent unemployment rate compared to a wealthy, white community like Wellesley which has a 6 percent unemployment rate.

These are glaring inequities that an antiracist state budget could play a role in reversing, by:

  • Providing direct cash payments to those who need it, regardless of immigration status,
  • Expanding paid sick days,
  • Extending unemployment benefits to everyone in our state who needs them, regardless of immigration status,
  • Ensuring schools have the funding to support their students, especially in our districts hit hardest by the virus,
  • Providing housing supports to households at risk of being evicted and to small landlords, and,
  • Making sure people have enough support to feed themselves and their families.

The choice in front of us is simple: We can choose to balance the budget through harmful cuts or we can raise revenue and strategically use our rainy day funds to expand and extend these supports.

These choices are not equal. Budget cuts will harm families and their communities.

We have been waiting for more federal relief. Though with the instability and uncertainty happening on the federal level, we can’t afford to wait any longer. People’s health and lives are at stake.

Additionally, 91 Massachusetts economists noted in a letter to state leadership that when private spending falls during a recession, cutting public spending only prolongs and deepens the recession. Instead, by raising taxes, particularly from wealthy individuals and the corporations that have been least affected by — and have even benefitted from — the pandemic, we can avoid harmful budget cuts and keep money flowing in our local economies. Focusing additional taxes on higher income filers, they explain, minimizes potential diversion of private spending because higher income filers spend a smaller portion of their income that do lower and middle-income filers.

In other words, raising revenue and strengthening our economy are not policies at odds with each other. These are two sides of the same coin. We must raise new revenue in order to protect and repair our economy.

There is a lesson we can learn from one of our neighboring states. A week ago, New Jersey signed a Fiscal Year (FY) 2021 budget into law by addressing its revenue shortfall through tax increases on the state’s highest-income residents and wealthiest corporations. This ensures that their state will maintain investments in key programs and services that will help New Jersey recover from the pandemic.

The testimony I provided at the last roundtable looked at how the Commonwealth’s revenues have performed in recent past recessions. The short answer to that question is “not well.” Still, this is a very unusual recession.

While some recent revenue figures have been encouraging — for example, the relatively good revenue collections we have seen during the first quarter of this fiscal year. Other signs are very concerning. Unemployment, as I mentioned, remains shockingly high and COVID infection rates are on the rise again, nationally and here in Massachusetts.

Here are some important facts to keep in mind as we consider the budget, and revenue needs for this year:

  • While revenue collections have done better than originally thought, there are many concerning signs that point to a possible, continued downward turn in our economy:
    • The federal CARES Act helped to boost the economy. Now with the $600/week in enhanced unemployment relief having ended, this additional income is no longer available to circulate through the economy. The $300/week in benefit supplements that President Trump diverted from FEMA has also ended.
    • In late December, other important federal unemployment benefits that have helped buoy the economy will expire. On top of that, next year the Commonwealth will have to start paying back our Unemployment Insurance debt with interest.
    • The latest August employment figures show almost 400,000 fewer people working in Massachuestts than the previous August. Losing the entire working population of 17 Massachusetts house districts.
    • While September unemployment numbers for the state have not yet been released, the Census Bureau’s experimental pandemic “Pulse Survey” from early September shows that a quarter of Massachusetts adults “expect someone in their household to have a loss in employment income in the next 4 weeks.” These grim expectations are not shared equally. It is only 12 percent for households with annual incomes over $200,000 and over 40 percent for Black and Latinx households.
    • Likewise, joblessness hit hardest in industries where people of color often work. For instance, 1 in 3 jobs in leisure and hospitality were still gone by August when compared to the previous August. This August the two industries with the greatest increase in unemployment claims over the previous year were: accommodation and food service and health care and social assistance — both of which had a disproportionate percentage of employees of color and Latinx workers. These are jobs that will be difficult to fully bring back until we have the virus under control.

Given this uncertainty, we think it prudent to plan for several years of revenue shortfalls of at least several billion dollars annually.

Despite meaningful federal funds that have already come to the state from COVID relief legislation, most can only support specific pandemic-related expenses and are not available to help balance the budget and fill revenue gaps.


This fall, MassBudget is hosting a series of community conversations, called Envisioning Equity, on how the state budget and progressive revenue can build a strong, just recovery.

Here are some of the needs expressed at these forums:

  • Our K-12 public schools, particularly those educating low-income students and students of color are facing many needs. Meanwhile, nearly $200 million in funding that the Governor recommended in his FY 2021 budget for K-12 schools has been held back because of the recession. There is CARES Act funding for COVID-related expenses, but this is one-time funding and it does not address the long-term investments needed in our lowest-income school districts. Many of our low-income schools and students:
    • Do not have access to computers and adequate broadband to log into online classes. This lack of access also exists in rural parts of the state without adequate internet access at all.
    • Need money for protective equipment and cleaning supplies to keep students and teachers safe.
    • Need for additional support for students with special needs so they can learn, and more.
  • Many low-income renters and homeowners will also need assistance when the eviction moratorium ends in ten days. Our panelists strongly expressed the housing emergency they are seeing in many parts of the state.
    • It could cost the state hundreds of millions of dollars to keep families, who are struggling to stay housed because of COVID, from being evicted.
    • The Metropolitan Area Planning Council estimates that 178,000 households may have difficulty paying their back rent or mortgage payments and could need almost $200 million each month in aggregate assistance if they are to remain housed.
    • The National Low income housing Coalition estimates that as many as 300,000 households in Massachusetts are at risk of eviction.

NOW IS NOT THE TIME FOR AUSTERITY. Communities have been suffering for quite some time because of a deep legacy of racist policies.


What are some equitable progressive revenue changes that can address budget gaps for FY 2021 and beyond?

  • Restore the tax rates applied to corporate income to pre-2010 levels (8.0% to 9.5%): This will raise approximately $375 – 500 million each year.
  • Recouple the Massachusetts tax code to the federal Global Intangible Low-Taxed Income (GILTI) provision: Uncertain, but based on our work with national experts on this issue, we think it likely this could raise over $200 million each year.
  • Raise tax rates applied to unearned income: Each 1 percentage point increase in the rates applied to long-term capital gains, and dividend and interest income would generate (together) approximately $400 million each year during periods of strong economic growth and/or strong stock market performance. If we were to adopt an exemption for seniors, it would reduce somewhat the size of the net revenue gain.
  • Eliminate or delay the charitable deduction tax break: This is a very regressive tax break that the Department of Revenue (DOR) has estimated will cost the Commonwealth $300 million each year.
  • Eliminate single sales factor apportionment (SSF) for mutual fund service providers: The savings to be had from eliminating SSF for mutual funds is somewhat unclear. Based on historical data from DOR, MassBudget estimates that elimination of SSF for mutual fund companies could save roughly $180 million in FY 2021.

It is through our state budget, and the revenue we raise, that we can best help our neighbors hardest hit by this health and economic crisis — while building a strong recovery that is racially and economically just.

I believe that we can reverse these trends, but it’ll take swift, well-informed, equitable action that is on scale here on the state level.

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Massachusetts could face a $5 billion budget hole; Baker administration takes tax hikes off the table for now https://www.bostonglobe.com/2020/10/07/metro/massachusetts-could-face-5-billion-budget-hole-baker-administration-takes-tax-hikes-off-table/?p1=StaffPage#new_tab&utm_source=rss&utm_medium=rss&utm_campaign=massachusetts-could-face-a-5-billion-budget-hole-baker-administration-takes-tax-hikes-off-the-table-for-now Wed, 07 Oct 2020 13:17:17 +0000 https://massbudget.org/?p=11604 The Senate and House chairmen of their respective chambers' budget committees, Michael J. Rodrigues and Aaron Michlewitz, prepared to host a virtual roundtable with experts to determine how dire Massachusetts' financial picture is. “There’s a budgetary crisis happening,” said Marie-Frances Rivera, president of ... Massachusetts Budget and Policy Center.]]> The Senate and House chairmen of their respective chambers' budget committees, Michael J. Rodrigues and Aaron Michlewitz, prepared to host a virtual roundtable with experts to determine how dire Massachusetts' financial picture is. “There’s a budgetary crisis happening,” said Marie-Frances Rivera, president of ... Massachusetts Budget and Policy Center.]]>