Raising taxes as the first option in response to pandemic-fueled budget problems would send the wrong message to struggling employers, according to one business group which is urging lawmakers Wednesday to delay any major decisions until after the results of the Nov. 3 elections are in.
In light of President Donald Trump’s decision Tuesday to remove the White House from stimulus bill talks, the Massachusetts High Technology Council is also calling on state lawmakers to avoid major budgetary decisions in a post-election lame-duck session and instead wait until a new Legislature is seated in January.
The group says lawmakers trying to guess about tax revenue and economic trends still face too much uncertainty, some of which might dissipate after Nov. 3.
“Depending on national election results, potential federal aid to Massachusetts at levels that would significantly or completely alleviate state revenue impacts from COVID-19 may become an increasingly realistic possibility,” the council wrote in a legislative memorandum released Wednesday.
The federal government has poured hundreds of billions of dollars, through fiscal and monetary policies, into the economy during the pandemic but the virus continues to take a toll, and many people and businesses are struggling to get by. Republican Gov. Charlie Baker and Democrats who run the Legislature have not outlined preferred budget solutions, but have called on Washington for more aid while hearing in-state calls to raise taxes to fuel spending.
The council memo warned that tax increases would add to the burdens employers face, noting the state’s jobless rate is still at 11 percent after the loss of 400,000 jobs since January. Small business revenues fell nearly 33 percent from January to July, and more than 90 percent of respondents to a Black Economic Council of Massachusetts survey reported a somewhat to severe negative financial impact due to the pandemic, the memo cautioned.
The council also warned that the remote work trend has lowered “barriers to exit” and lawmakers need to be especially mindful about retaining employers.
“Employers of all sizes face daunting COVID-19-related challenges that are generational in scope and complexity,” according to the council. “These challenges come on the heels of billions of dollars in new employer costs associated with paid family leave mandates, minimum wage increases, and private health insurance premium increases. At the same time, employers face a looming multi-billion dollar increase in unemployment insurance premium taxes for 2021 and beyond and the continued advance of a graduated income tax proposal that would be permanently embedded in the state constitution.”
Budgetary steps lawmakers should take, according to the memo from council vice president Mark Gallagher, include accurately measuring revenue and spending gaps, optimizing the use of federal relief and borrowing options, leveraging the state’s $3.5 billion in reserve funds, and limiting spending growth.
Lawmakers and the Baker administration for months have been operating with imprecise tax revenue estimates, keeping state spending moving with temporary budgets while simultaneously pointing to suggestions that tax revenues will fall from $2 billion to $8 billion below the pre-pandemic fiscal 2021 estimate.
A fiscal 2021 budget was due on the July 1 start of the fiscal year, and Beacon Hill leaders have still not outlined plans to propose and debate a budget.
The council suggests a spending freeze as one option to obtain needed savings, saying state spending has increased more than 15 percent since fiscal 2015 and said business leaders, including the council, could eventually support temporary tax increases as part of a multi-faceted approach to budget woes.
“Temporary revenue raising options may ultimately be necessary and could attract significant support from business leaders — including the Council — provided they are coupled with a combination of prudent and forward-looking approaches that include the use of all available fiscal tools, including federal aid, state ‘rainy day’ funds, state borrowing, public procurement reforms and controls on state spending,” the memo said.
The council’s members are CEOs and senior executives representing about 100 tech companies, professional services firms, and research institutions that employ hundreds of thousands of people in Massachusetts and around the world, with about 100,000 employees in Massachusetts.
A divided Congress and President Trump have for months been unable to find common ground on a COVID-19 and economic stimulus bill, but the calls for relief are continuing and analysts are starting to give more consideration to the prospects of a relief package passing after next month’s elections.
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