Gov. Charlie Baker last week signed a bill that will ban the sale of all flavored tobacco products — including mint and menthol cigarettes — beginning June 1, 2020.
Lawmakers did not present a fiscal impact of the policy, but the new figures indicate that the loss to the state from cigarette and sales taxes will outweigh the new tax on e-cigarettes.
The figures were submitted to the Legislature’s Committees on Ways and Means Wednesday at the annual consensus revenue hearing, which is the first step toward developing a fiscal 2021 budget.
The flavored tobacco ban is only one area in which tax changes are expected to alter state revenues.
As the number of recreational marijuana stores increases, the Department of Revenue is forecasting that marijuana taxes will raise between $102 million and $189 million in fiscal 2021. That is up from an estimate of between $93 million and $172 million in the current fiscal year.
But Revenue Commissioner Christopher Harding warned that the legal marijuana market is not yet fully developed, so the projections are uncertain. “Uncertainty remains around the rate at which the market will grow and how prices will change over time, both of which will impact revenue patterns,” Harding said in his testimony.
Harding said so far, marijuana revenue is “pretty much on track” this year, although there was a recent decline after Baker banned, and the Cannabis Control Commission then quarantined, almost all vaping products.
A new tax on short-term room rentals is expected to bring in $30 million in fiscal 2021, similar to the $27.5 million it is expected to raise this year. There is also a sales tax going into effect on online sellers, such as eBay and Etsy, which is expected to raise $62.6 million next year.
The Department of Revenue also expects the income tax rate to drop to 5% on Jan. 1, 2020, which is scheduled to happen as long as the state meets certain economic triggers. Residents would pay $185 million less in income taxes in fiscal 2021 under that rate.
Overall, economists are predicting modest growth in state revenue next year. The Department of Revenue is predicting revenue collections of between $30.62 and $30.99 billion in fiscal 2021, an increase of between 1.5% and 2.1% over current year forecasts.
Harding said while the past two years have been strong ones for the Massachusetts economy and state revenue growth, some of that was due to one-time events, like federal tax reform. There is little room for the economy to grow since the state already has low unemployment.
Additionally, while the U.S. economy is experiencing a long period of growth, Harding said, “History has taught us that all expansions come to an end: the question is when the decline will start and how hard the fall will be.”
Other outside experts offered slightly different predictions. The Massachusetts Taxpayers Foundation, The Beacon Hill Institute for Public Policy and Northeastern University economist Alan Clayton-Matthews gave revenue estimates that ranged from $30.47 billion to $31.8 billion.
The Massachusetts Taxpayers Foundation is forecasting a slump in job growth due to a tightening labor market, as older workers retire and the number of available younger workers flattens out. It is also urging caution about the global economy.
The Beacon Hill Institute for Public Policy forecasts assumes a strong national economy but worries about a slowdown in growth in the Massachusetts economy.
Several experts warned about the uncertainty created by President Donald Trump’s trade and tariff policies.
UMass Dartmouth professor of public policy Michael Goodman warned that an aging workforce in Massachusetts combined with tight federal restrictions on immigration are making it harder for employers to find skilled workers. Goodman also warned that “stifling congestion” and the high cost of living in the Boston area threaten the local economy. He warned lawmakers that they must find solutions that increase the attractiveness of regions outside of Greater Boston as places to live and work.
The House, Senate and Baker administration will take the testimony from the public hearing and develop a consensus revenue estimate, which is their joint estimate of how much money the state will take in next year in tax revenue. That estimate will form the basis for the fiscal 2021 budget.
©2019 The Republican, Springfield, Mass.. Distributed by Tribune Content Agency, LLC.
