Expecting to see the end of the COVID-19 pandemic on the horizon, Gov. Charlie Baker has submitted a budget plan to the Legislature that includes a $700 million tax break for many Bay Staters, including pensioners, families, and the state’s 200,000 lowest-earning workers.
But Baker’s tax cut plan will increasingly share the headlines with a ballot question to raise $1.3 billion in taxes on annual incomes over $1 million.
Baker says the commonwealth can afford his proposal, which includes a capital gains cut, thanks to federal stimulus as well as a state economy that was more productive last year than expected.
The $700 million tax plan took center stage at Baker’s State of the Commonwealth address in January, and since then has entered the legislative gauntlet as the House and Senate will in turn deliberate their own budgets.
Baker’s budget is the most ambitious he’s proposed during his tenure, and leans heavily on the surplus that’s built up over the past few years.
A staple of good government is not budgeting for cash infusions that are one-time or temporary in nature. As the severity of the pandemic lessens and summer approaches, it’s come time to anticipate what Massachusetts’ economic landscape will look like in the future.
Although the commonwealth has weathered the pandemic fairly well with the influx of federal aid and is now armed with a sizeable surplus, the hardships of the past two years have exposed institutional problems that need to be addressed — education and transportation.
Backers say the Fair Share Amendment seeks to solve these problems. So far, the consequences of these issues have been stayed by federal cash infusions.
Revenue generated from the Fair Share Amendment, also known as the millionaire’s tax, which will be on the ballot this November, is earmarked for education and transportation needs. The funds will come from a 4% hike in incomes exceeding $1 million.
According to a study by the Tufts University Center for State Policy Analysis, the amendment is expected to raise roughly $1.3 billion next year if it passes.
Even before the pandemic, the faults in the commonwealth’s transportation infrastructure began to show. According to Sen. John Keenan, D-Quincy, vice chair of the Legislature’s Committee on Transportation, MBTA ridership has been down for years.
“Their revenue continues to be a challenge,” Keenan said in an interview.
One of the challenges the MBTA faces is keeping its vehicles, primarily trains and buses, in “states of good repair,” meaning they are maintained at a quality that allows damaged vehicles to be easily repaired instead of replaced by brand new machinery.
Keenan said it’s essentially “taking what you have and getting it to a point where it’s in good condition.”
He said this has been difficult due to an “enormous backlog,” especially as funds have become scarce due to the pandemic. Revenue generated from passage of the ballot question would help keep MBTA vehicles in good working order.
Commuter rail has its own set of problems too. According to Keenan, maintaining the infrastructure has been the main issue, while establishing new routes and lines for a growing workforce to utilize has proven challenging.
To ease congestion, Keenan said, “there are hopes that different modes of transportation will develop,” such as a ferry system that can carry people from Boston to Salem and beyond.
In addition to fixing the problems prevalent in public transportation, Keenan said revenue from the amendment would also go towards maintaining roads, bridges, and other general infrastructure across the state.
Federal dollars have been used to address this and “speed up” other projects, but Keenan said revenue will have to be generated at the state level to effectively mitigate the hardships the MBTA and others have faced.
The amendment is also intended to address issues and concerns the education community has faced in the past two years.
The Student Opportunity Act requires communities to meet certain education funding obligations every year.
“To meet the long-term needs of our education system and obligations under the Opportunity Act, the money from the Fair Share Amendment would be very helpful,” Keenan said.
These obligations include classroom funding, increasing educators’ wages, and ensuring resources are delivered to the communities that need them the most. Revenue collected from the amendment will also be made available to some higher education institutions.
Keenan believes funding higher education is important because it will help train a committed, well-educated workforce that will “attract businesses to Massachusetts and keep them here.”
Opponents of the amendment argue that it will harm small businesses, drive larger ones out of the state, and fail to raise enough revenue to make the tax hike worth the trouble.
“I think there will be significant economic consequences,” Eileen McAnneny, president of the Massachusetts Taxpayers Foundation, said in an interview.
McAnneny and the foundation have been vocal opponents of the amendment, specifically arguing that there’s no guarantee the tax revenue will actually fund education and transportation initiatives.
“I want to make sure that the funding is necessary,” McAnneny said. Her worry is that pouring more money into transportation and education might fail to accomplish the amendment’s goals, and existing funds may be sufficient to address their issues.
In terms of transportation, McAnneny cited continuously falling MBTA ridership as a reason not to pass the amendment. As far as education is concerned, McAnneny said lower enrollment and birthrates will create a smaller need for funding, and may even make reallocation of funds out of education necessary.
McAnneny also pointed to a record high state stabilization fund and state tax collection coming in at “17% higher … than expected.”
According to the Office of the Comptroller, the “rainy day fund” reached $4.6 billion by the end of the 2021 fiscal year.
Steve Crawford of RaiseUp Massachusetts disagrees, arguing that roads, bridges, public schools, and colleges “are in desperate need of an infusion of money from a long-term revenue source.”
Crawford said in an interview that the pandemic has made the issues with the state’s education and transportation systems “more obvious,” and additional funds are needed to mitigate them.
He also emphasized that the tax will affect a very small proportion of the population, roughly 0.6% of all Massachusetts households according to the Tufts study.
Some programs Crawford hopes the amendment will help fund include vocational training, school renovations, and making higher education more affordable.
The hardships brought on during the last two years are not lost on Crawford.
“Our kids need significant help following COVID. It has been a very difficult period for them, almost universally,” he said.
Crawford hopes that the Fair Share Amendment will not only help students readjust to post-pandemic life, but also help struggling communities and institutions bounce back and succeed.