Sudden tax surcharge adjustments the dynamics of the state finances

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Sudden tax surcharge changes the dynamics of the state budget

By: By Colin A. Young, State House Intelligence Service

Posted: Dec 11, 2020 / 6:25 PM EST
Updated: December 11, 2020 / 6:25 PM EST

Due to the coronavirus, the Treasury Department issues payments to U.S. citizens for economic impact, known as a stimulus check or tax refund concept.

BOSTON (SHNS) – The Baker administration is now planning to raise nearly half a billion dollars more from taxpayers this fiscal year than it did two months ago when the governor submitted his revised budget, money that represents a major loss of reserves and support from State could limit additional spending.

Coupled with the signing of a $ 45.9 billion fiscal year 2021 budget on Friday, Governor Charlie Baker’s budget office increased its tax revenue by $ 459 million to $ 28.44 billion, in part attributed to fiscal 2021 tax revenue that is $ 142 million, or 1.3 percent, advance collections for fiscal 2020 over a five month period.

The Executive Office of Administration and Finance estimates it will receive $ 249 million more income tax and $ 210 million more sales tax than it did in mid-October when Baker submitted a revised budget that included the amount of tax revenue available for this fiscal year of $ 27.592 billion were accepted. The administration has not changed its assumptions for corporate and other taxes.

Baker’s budget office expects to be able to do some things as it expects to raise more from taxpayers. The government plans to withdraw $ 1.35 billion from the state’s Rainy Day Fund, though the budget allows for a draw of up to $ 1.7 billion, driven by the increased revenue and vetoes of the state, according to an administrative official Governor for some earmarked expenses would be possible.

The revenue estimate upgrade also gave the administration the flexibility to submit an additional $ 107.4 million budget on Friday to fund the portion of Baker’s proposed small business recovery program that lawmakers cut from the budget ( $ 49.4 million), allowing administration to distribute approximately $ 53 million in K-12 education funding with no limitation through a formula and allocating $ 5 million to set up a new peace commissioner standards and training committee.

When Baker submitted his first fiscal 2021 budget prior to the pandemic, it was based on an estimate of $ 31.15 billion that his office and major lawmakers had jointly approved. As the pandemic devastated the economy and budget scribes decided to postpone the budget for several months into the fiscal year, some economists and lawmakers expected fiscal 2021 tax revenue to be up to $ 8 billion below this pre-pandemic estimate .

Instead, Baker’s latest sales forecast would mean a drop of $ 2.71 billion, or 8.7 percent, from the pre-pandemic consensus sales estimate. This represents a decrease of $ 1.156 billion, or 3.9 percent, from actual fiscal 2020 collections of $ 29.596 billion.

As of November, the Treasury Department had raised $ 11.464 billion in tax revenue for fiscal 2021 – $ 142 million, or 1.3 percent, more than the same period in fiscal 2020.

“Month after month, government tax revenues seem to be defying economic logic,” said Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, last week when the November revenues were announced. “You have held up surprisingly well since the summer despite high unemployment and real hardship. A lot could go wrong, but the state is actually well on its way to raising over $ 31 billion in FY21, well above the $ 27.6 billion estimate included in the proposed budget. “

However, Baker’s budget office doesn’t anticipate it will raise more than $ 31 billion, which means the bottom will eventually fall and the trend towards rosier than expected monthly tax collections will end.

A government and finance official said Friday that the recent nationwide spike in COVID-19 cases is creating significant uncertainty for the economy in general, and tax revenue specifically, and that the changes to the federal tax law in recent years will add to the months of March-April Have attached importance. and May for government tax collections.