Tax revenue slide leaves state four hundred million behind expectations

Tax revenue projections continue to crater
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– News covered by Quincy Quarry News with commentary added.

Tax revenue slide leaves state four hundred million behind expectations

In spite of continued economic growth, state government fell into an even deeper financial hole in January when tax collections missed their target by $195 million leaving state finance officials staring at a $403 million tax revenue gap more than half-way through the budget year.

Budget monitors had been hoping to see a rebound after a dismal December for state revenues, but income tax collections continue to lag the state’s projections.

Follow the money
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“While most major categories of revenue continue to perform generally as expected, Massachusetts, like a number of other states, experienced below-benchmark performance in the category of non-withheld income in both December and January, particularly in individual estimated payments,” said Massachusetts Department of Revenue Commissioner Chris Harding via a prepared statement.

Harding attributed the worsening shortfall to “volatile capital gains,” which are paid on investment earnings. 

The bull took a nap during 2018
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Massachusetts is not alone among states experiencing a downturn in the middle of the fiscal year that has been attributed to changing behavioral patterns as a result of the 2017 federal tax reform law.

Given a pervasive decline in stock prices during 2018, however, it is only reasonable to suspect that the Department of Revenue’s capital gains tax projections for 2018 might be optimistic after going 0 for 2 so far this tax season.

Historically, January tax collections account for about 10 percent of overall revenues for the year.  Revenues of $2.79 billion for the month were down $180 million from last year and so further continued December’s shortfall. 

Governor Baker responding to questions
A file photo via Commonwealth Magazine

Despite back-to-back bad months, Massachusetts Governor Charlie Baker did not seem ready to panic. 

At least not yet. 

“I think we’re fine,” Baker said prior to the release of the official figures and which he had not yet seen.

After the January figures were published, however, Baker’s office issued a statement indicating its would “continue to closely monitor revenue collections over the next few months.”

In late January when he released his $42.7 billion budget for fiscal 2020, Governor Baker said he was still bullish on the economy.

“Our employment numbers still look really good and withholding and sales and estate taxes all still look really good,” Baker said.

“The big question mark that was created in December was around estimated payment and there are a lot of states and a lot of experts that believe the estimated payments issue is a timing question.”

In short, timing is everything …

Source: Revenue slide leaves state $400M behind benchmark

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