With Massachusetts facing a $6 billion budget shortfall, lawmakers hope to avoid big spending cuts while minimizing hardship.
There still is no consensus on how to do that.
Cuts could delay economic recovery, observers say, and have harmful long-term consequences on those hit hardest by the coronavirus pandemic. Some say tax increases are preferable and perhaps inevitable.
Legislators expect that the state will draw from its $3.5 billion rainy day fund, raise new revenue and possibly borrow — with some targeted cuts.
"People don't want to talk about taxes, but the alternative is cutting basic services that are investments crucial to our collective well-being," said Randy Albelda, a professor of economics at the University of Massachusetts-Boston, who supports corporate and income tax increases. "These cuts would have disproportionate impacts on communities of color and women."
State Sen. Adam Hinds, D-Pittsfield, who chairs the Senate's revenue working group, said "everything is on the table" to raise revenue.
"We're committed to avoiding cuts, so that's a starting point, and how we get there is what we're working on," Hinds said.
Some House lawmakers, though, are skeptical of tax increases, which, they say, would hurt people already struggling.
"In my 35 years in municipal government and state government, I've never seen a situation where you increase taxes when things are going bad," said state Rep. John Barrett III, D-North Adams. "That's when you're supposed to use the rainy day funds."
With unemployment about 16 percent, there is little appetite for tax increases now, said state Rep. William "Smitty" Pignatelli, D-Lenox. Even with the rainy day fund, the state must proceed with caution, he added.
"We have to be careful how much we take out of it, not knowing if this is a six-month dip, or a two-and-a-half-year dip," Pignatelli said. "It'll be a combination of the rainy day fund, looking at ways to raise revenue carefully and being smart about spending."
Recession tax hikes
Massachusetts increased tax revenues in each of the past three recessions, allowing for a more "balanced" approach than only cutting spending, according to a report from the Massachusetts Budget and Policy Center.
"Economic theory and historical experience" have shown recession-time spending cuts to be more harmful than tax increases, 91 economists argued in a May 26 letter. Albelda, the UMass-Boston professor who worked on tax policy for the state Senate in the 1980s, co-wrote that letter.
Spending stimulates the economy, and infrastructure investments promote future prosperity, said Gerald Friedman, a professor of economics at the University of Massachusetts-Amherst.
"You're putting more money in people's pockets through state spending, [and] somebody in the commonwealth will spend some of that money on services and goods produced in the commonwealth," he said.
Maintaining those investments will require tax raises, economists say.
While the state hiked its sales tax in 2009, raising corporate rates and income tax (along with an increase in exemptions) might shift the tax burden more toward top earners, whose spending levels have fallen significantly.
"If equity matters at all, then budget cuts are far worse than increasing taxes on those who can afford to pay them," Albelda said.
The argument that low taxes lead to economic growth has been weakened by recent studies, Friedman said. States that cut more in the Great Recession fared worse economically than states that resisted cuts, according to the Center for American Progress.
"The politics aren't great when people are already hurting," Friedman said. "But, the alternative is to go to your constituents and explain the destruction of our education system and the crumbling of the public health system during a pandemic."
Barrett said that when he was mayor of North Adams, from 1984 to 2009, he sought to use rainy day funds to balance budgets during three downturns.
"We put money aside in every account we could," Barrett said. "You consolidate services. You don't go out and tax the people, especially in Northern Berkshire."
Barrett supports closing corporate tax loopholes, and he, along with other Berkshire lawmakers, has said he wants to protect education funding. But, he doesn't buy economists' arguments for tax increases.
"Where are people going to get jobs when their unemployment benefits run out?" he asked, adding that North Adams' downtown has struggled in recent years.
Chris Carlozzi, the Massachusetts director of the National Federation of Independent Business, said the state should cut spending, identifying "a bloated MassHealth system" as one target.
"The state will need to take a good hard look and make tough decisions, just like any business has to do right now," he said.
Job creation by small businesses and a gradual resumption of consumer spending will fuel the state's recovery, Carlozzi said, and tax increases would hurt small businesses after what he characterized as "a very slow reopening process."
"The faster small businesses start employing workers again, and commerce resumes in the state, the state will start seeing more money coming into their coffers as well," he said.
More clarity on the previous year's state tax receipts and the possibility of federal aid is expected by mid-July, when revenue talks likely will pick up.
Berkshire lawmakers have expressed support for taxing corporate income held offshore. Estimates vary over how much revenue that would raise, but they top out at $400 million.
While the House passed a transportation bill in March that included a 5-cent gas tax increase and was projected to raise $600 million, the Senate has not moved forward with the legislation.
State Rep. Tricia Farley-Bouvier, D-Pittsfield, urged the Senate to take up the bill in a June 29 letter from the House Progressive Caucus, which she co-chairs.
"I'm calling for a serious look at revenue before cutting," she told The Eagle. She said she doesn't support raising income taxes.
Massachusetts Taxpayers Foundation President Eileen McAnneny said the state must be careful with possible tax increases.
"If the budget gap is sizable, they're going to have to, as part of the solution, probably increase taxes," McAnneny said, but added, "We want to make sure that we're not hurting people at a time when they're economically vulnerable. We also don't want to make Massachusetts a high-cost state."
The revenue group will accelerate its work in the fall and explore "new ideas about how to create a fair tax system," Hinds said. Massachusetts' constitution requires a flat rate for income taxes, although reform efforts have renewed after the state's Supreme Judicial Court blocked a referendum in 2018.
More comprehensive reforms could come in future years, which might pose an even greater revenue challenge, Hinds said.
"We anticipate federal assistance this fiscal year, but the next fiscal year is where I think there are going to be bigger problems," Hinds said. "We are not going to have federal assistance, and we are assuming the full effects of layoffs and the recession will be felt. So, the timeline for developing new sources of revenue may not be this July."
Danny Jin, a Report for America corps member, is The Eagle's Statehouse news reporter. He can be reached at firstname.lastname@example.org, @djinreports on Twitter and 413-496-6221.