By Brooke Thomson
President & CEO

Two sets of budget debates conducted worlds apart politically last week underscored the fiscal uncertainty facing both the commonwealth and the nation as we head into the second half of 2025.

The Massachusetts Legislature approved, and Governor Maura Healey signed a $61 billion state budget that increases spending by $3.3 billion for the fiscal year that began July 1. It is a budget hammered out against the backdrop of a projected revenue shortfall of between $600 million and $1 billion. It is also a budget that includes huge line items that are dependent on federal spending levels.

President Donald Trump, meanwhile, signed a major tax and spending bill that will form the linchpin of his administration’s economic agenda. The legislation would extend the 2017 Tax Cuts and Jobs Act and provide a total of $4.5 trillion in tax cuts, with scores of them being business-related. This includes allowing businesses to immediately write off 100% of the cost of equipment and research.

The bill would extend the provision of the Tax Cuts and Jobs Act that reduced tax brackets from 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% respectively to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The income levels for the brackets were slightly increased, which generally reduced taxes for individuals.

The deduction for qualified business income earned by pass-through entities would become permanent. It is an important provision for subchapter s corporations and other businesses hurt by the state income surtax.

But the federal bill will also reduce projected spending on Medicaid, the health-insurance program for low-income people, by $1 trillion over 10 years. Medicaid, through the MassHealth program, represents one-third of the Massachusetts state budget.

Additionally, the federal proposal would change the Federal Matching Assistance Percentage in a manner that could significantly reduce funding for states like Massachusetts that provide coverage to undocumented immigrants and certain lawfully present immigrants.

State Senator Michael Rodrigues, the lead negotiator for his chamber on the Massachusetts budget, told The Boston Globe that the agreement came after warnings from the state budget office and budget watchdogs “that tax revenues are precarious, to say the least.”

“We wanted to . . . minimize anything that happens, especially down in D.C.,” the Westport Democrat said. “We still don’t know what’s going to happen down there.”

All of this is a big concern for Massachusetts employers, who depend upon the government to manage its affairs prudently and minimize the tax burden on companies as they seek to grow and create jobs. The combination of budget uncertainty, shifting policy on tariffs and economic contraction in the commonwealth during the first quarter of 2025 has driven the AIM Business Confidence Index into negative territory for the past two months.

The state budget comes in $1 billion less than the price tag of Governor Healey’s original budget proposal and $500 million less than what either the House or Senate committed to in recent months.

The good news for employers is that the blueprint includes no new broad-based tax increases. It does, however, use an additional $400 million in revenue from the surtax on household income above $1 million a year. In addition, the Massachusetts Taxpayers Foundation reports that the budget includes an unspent balance of more than $800 million “which could mitigate negative tax revenue impacts in the future.”

AIM continues to monitor budget developments on both the state and federal level. Please contact Sam Larson, Vice President of Government Affairs, at slarson@aimnet.org, with questions or comments.