Surprise! July state tax revenues increase
State officials scratching their heads; Could UI benefits be cause?
STATE OFFICIALS are scratching their heads in astonishment over the July tax revenue numbers released last week.
Even though the state’s unemployment rate is in the stratosphere and many businesses are struggling to survive, the Department of Revenue reported that tax revenues in July were actually $88 million higher than they were in July 2019 – prior to COVID-19 and the economic devastation it brought with it.
How can that be?
Baker administration officials and the Department of Revenue both declined comment, as did officials from the budget-writing committees of the House and Senate.
The fact that July is the first month of fiscal 2021 also makes the revenue numbers eye-turning. Many tax analysts have projected the state is likely to come up short on revenues during the current fiscal year by as much as $4 billion to $7 billion.
Eileen McAnneny, president of the Massachusetts Taxpayers Foundation, said the July numbers were perplexing. She said it was hard to understand how tax withholding – the amount withheld from worker paychecks and paid directly to the government in taxes – could be up $80 million compared to July 2019.
She said there is some speculation that the increase in tax revenue may be related to unemployment insurance benefits. She noted the federal government was providing an additional $600-a-month payment to unemployed individuals through the end of July, with the figure of $600 selected because it represents the average gap between state unemployment benefits and a typical unemployed worker’s former pay.
Since the $600 figure is an average, some people may be earning more unemployed than they were working. McAnneny said unemployment benefits are taxed so, if people were actually earning more with the $600 bump than they were when they were working, that could drive up tax payments.
Massachusetts has one of the highest unemployment rates in the country, with more than 500,000 people on unemployment assistance as of the last week in July.
McAnneny cautioned not to read too much into one month of revenue numbers, particularly since July is often a low revenue month. “We’d love to see a couple more months, to see if it is a trend,” she said.With Congress stalemated on a new federal stimulus bill, President Trump on Saturday signed an executive order that would substitute a $400 weekly enhanced unemployment benefit for the $600 benefit that expired at the end of July. Under Trump’s proposal, the $400 benefit would run through December 6. Trump’s order would require states to pick up a quarter of the cost.
One of the reasons the Massachusetts Legislature put off action on a fiscal 2021 budget and extended its session this year is to see if Congress passes another federal stimulus bill including more aid for states.