A group of Massachusetts economists are calling for tax increases during the COVID-19 pandemic to balance the state budget.
The economists' May 26 letter to Gov. Charlie Baker (R), House Speaker Robert DeLeo (D), and Senate President Karen Spilka (D) calls for increased income and corporate taxes to raise revenue as an alternative to “counterproductive budget cuts.”
The letter was organized by Alicia Modestino and Alan Clayton-Matthews, professors at Northeastern University; Michael Goodman, director of the Public Policy Center at the University of Massachusetts at Dartmouth; and Randy Albelda, professor of economics at the University of Massachusetts at Boston. Other economists who signed the letter include professors from Boston College, the Massachusetts Institute of Technology, and Tufts University.
The goal of the letter is to urge budget writers not to “take tools off the table during a disaster” and consider all possibilities during ongoing fiscal 2021 budget discussions, Goodman told Tax Notes May 27.
The state's fiscal 2021 revenues are predicted to fall by $6 billion from the January 2020 benchmark, according to a May 14 release by the Massachusetts Taxpayers Foundation.
“We are expecting a very slow economic recovery,” Goodman said.
According to the letter, spending cuts have historically been “more harmful than tax increases during recessions” and would have long-term economic consequences.
“Large cuts would erode the health and social infrastructure needed to continue [combating] COVID-19, increase an already high level of inequality, and exacerbate the economic downturn,” the economists said.
The letter suggests that raising personal income and corporate taxes would be a fair way to raise revenue “since they fall only on persons with incomes and businesses with profits.”
According to the letter, even if the income tax base falls by 25 percent, increasing the income tax rate from 5 percent to 6 percent could generate $2.5 billion per year. Also, increasing the corporate tax rate by 1 percentage point could raise $180 million annually, even if the corporate tax base falls by 50 percent.
The economists also argued that the proposed tax increases could be phased back as the economy recuperates.
“Nobody enjoys raising taxes, especially during an election year, but when the alternative is worse for our community, our state leaders need to consider all options,” Goodman said.
The letter's recommendations are based on current revenue projections, and more actions might be required depending on how long the pandemic lasts, Goodman said.
Baker's office did not respond to a request for comment by press time.