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Due to economic uncertainties associated with the Trump administration’s federal departmental-efficiency agenda and tariff policies, we all should plan for some belt-tightening, at least in the near term.
That’s true for households — and state government.
As we’re certain Beacon Hill realizes, the recently released rosy revenue figures don’t guarantee similar future results.
That’s a prudent attitude that our business community no doubt would like to see our governor and Legislature adopt.
There’s no disputing that fiscal 2025 tax-collections have exceeded expectations.
March revenue beat estimates by $101 million or 2.5%, and state tax revenues through three-quarters of the budget year are running $786 million ahead of benchmark, primarily driven by the 4% surtax on high earners and capital-gains tax collections.
The Department of Revenue said last week the $4.193 billion collected last month represented a 3.1% increase ($127 million) over total collections in March 2024, and raised the state’s year-to-date fiscal year tax haul to $29.681 billion.
That’s $2.149 billion (7.8%) more than actual collections during the same nine-month period of fiscal 2024, and 2.7% ($786 million) above the year-to-date benchmark.
DOR said a “significant portion” of the above-benchmark performance to date can likely be attributed to surtax and capital gains tax collections.
That millionaires’ tax revenue must be allocated to transportation or education purposes, while capital gains tax revenue flows adds to the state’s nest egg after reaching a designated threshold.
Revenue Commissioner Geoffrey Snyder said March saw increases compared to March 2024 collections in “all major tax categories.”
The 2.2% ($43 million) increase in withholding “reflects current labor market conditions,” while the 48.3% increase ($22 million) in non-withholding income tax is due, in part, to “pass-through entity excise payments and a likely increase in capital gains tax collections, partially offset by an unfavorable increase in refunds,” Snyder said.
The commissioner said almost flat sales and use tax collections “probably reflect the impact of declining consumer confidence and the lingering impact of past inflation.”
The 2.4% increase ($30 million) in corporate and business taxes “is driven by an increase in payments with returns and bills and a favorable decrease in refunds, partially offset by a decrease in estimated payments,” Snyder said.
And he attributed the 15.4% increase ($27 million) in the ‘all other’ tax mostly to “an increase in the premium tax on excess and surplus lines insurance policies, a category that tends to fluctuate.”
All this encouraging revenue news leads us to April — the most significant month for state tax collections.
It’s not only the month that generally generates the greatest share of tax revenue, but it also comes when budget management decisions are more limited, due to the approaching close of the fiscal year on June 30.
The Healey administration has tamped down expectations for April collections, setting the benchmark at $5.722 billion, or $605 million less than what was collected in April 2024.
And as the administration and lawmakers weigh how to divvy up the expected fiscal year surplus, the state’s top business groups issued a warning to the governor and legislative leaders currently crafting the next state budget.
The Associated Industries of Massachusetts, the Greater Boston Chamber of Commerce, the Massachusetts Business Roundtable, and the Massachusetts Taxpayers Foundation, in two letters sent to Gov. Maura Healey and legislative leaders, have called on budget writers to show an “urgent focus” on keeping the state’s edge in an increasingly competitive world.
The state needs to show a “continued focus” on solving an ongoing housing shortage and shoring up longstanding transportation shortfalls, but that’s just a “baseline” for lawmakers considering next year’s spending plans, they write.
The business groups recommend four “areas of focus” for budget writers.
First, lawmakers must prioritize “growing and maximizing the state’s labor force.” The state’s educational institutions have “been our primary competitive advantage for decades,” but the high cost of living is driving highly-trained talent away.
The answer, despite current trends, may lie in immigration, they write.
“It is a priority of our organizations to work with you to identify and address barriers to employment for this critical population, connect untapped talent pools to the workforce, and create a social and economic environment that is conducive to recruiting and retaining the best talent in the world,” they write.
Lawmakers should next support “key economic sectors” of the state economy in the face of federal intransigence, the business groups advise.
“A shifting federal landscape and ongoing geopolitical pressures are impacting many of the state’s key industries that are foundational to our economy, such as higher education, health care, life sciences, and clean energy,” they warn.
When crafting the budget, lawmakers need to view “policy through the prism of cost.” Many factors, such as “housing, energy, health care, childcare, and unemployment insurance,” drive up the price of doing business and living in the state, and the two “act like a vice” on the state’s economy, according to the business groups.
Finally, the state must keep its eye toward “maintaining strong public finances” by keeping budget growth in check and not raiding the Rainy Day Fund.
The governor and decision-making lawmakers would do well to heed the advice and these groups and their membership, who know what it means to meet a payroll and live within their means.
