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Posted on October 9, 2020
Massachusetts policymakers face a stark choice as the Commonwealth struggles through the eighth month of the COVID-19 pandemic – support thousands of businesses and their workers hanging by a thread during the worst recession in almost a century or raise taxes and push those companies over the edge.
The devastation brought about by the pandemic has been painful. More than 400,000 Massachusetts residents, many in lower-wage occupations, have lost their jobs. A quarter of all restaurants in the state have closed and are unlikely to re-open and many other small businesses face closure over the next several months. And traditional Massachusetts economic drivers like health care and higher education are shedding jobs.
It’s difficult to believe that some people survey this devastation and conclude that the appropriate response is to increase the cost of doing business through raising taxes.
Governor Charlie Baker has a better idea to put the economy back on track. The governor asserts that Massachusetts can get through the current fiscal year without drastic fiscal cuts or new taxes by concentrating on creating jobs and stabilizing the economy.
More than 3,500 members of Associated Industries of Massachusetts agree. The state must seek solutions beyond the reflexive options of raising taxes or slashing important programs.
“AIM is eager to work with the Baker Administration, the Legislature and other policymakers to determine whether other mechanisms such as utilization of the Rainy Day Fund or even low-interest borrowing make sense to meet the fiscal needs of the Commonwealth until federal lawmakers indicate their intent to provide additional stimulus and much needed support to the states,” said John Regan, President and Chief Executive Officer of AIM.
“Tax increases now would further destabilize businesses, many of which are already on the edge of collapse.”
A new AIM survey of Massachusetts employers underscores the uniquely fragile nature of the economy, even for companies that have operated throughout the pandemic as essential businesses. Two-thirds of companies surveyed report that sales for 2020 remain below projections. Many are planning layoffs, furloughs, reduced hours or pay reductions as the rising cost of complying with state regulations makes continuing operation unprofitable.
While policymakers and experts discuss new taxes, Massachusetts employers are juggling unfamiliar public-health guidelines to keep employees and customers safe – all the while trying to ensure they are profitable enough to provide those employees stable work, good paychecks and vital benefits.
The reality is that many of these businesses are at or near the breaking point as costs continue to skyrocket.
Employers are paying $1 billion to fund the commonwealth’s new Paid Family and Medical Leave Program. They are dealing with federal mandates from the Families First Coronavirus Response Act (FFCRA) that provides paid leave and expanded family and medical leave on a temporary basis until December 31.
And, due to the 11.3 percent unemployment rate in Massachusetts, employers face an almost doubling of unemployment insurance taxes to offset the $6 billion Unemployment Trust Fund deficit coming next year.
The minimum wage increased to $12.75 per hour this year and will rise again to $13.50 on January 1. And while the 2017 federal tax reform lowered tax liability for some companies, it also increased the state tax bills for most employers.
AIM acknowledges that the pandemic-driven recession has impacted the state budget. The Massachusetts Department of Revenue estimated last week that state tax collections will fall this fiscal year between $2.7 billion to $5.2 billion below original expectations. But there is good news in that the balance in the state’s Rainy-Day Fund is approximately $3.5 billion. We can all agree it is certainly raining.
As AIM members know, in times of fiscal uncertainty, all strategies for recovery must be explored. The business community is urging government to use the same strategies that companies have used throughout the pandemic to reduce spending to ride out the storm.
“The current crisis provides state and local governments the opportunity to find innovative ways to reform themselves, just as the business community has done, so that they can continue to deliver vital resources and services to the people of the Commonwealth,” Regan said.
The pandemic has shown us that the Massachusetts economy is able to adapt and bring innovative solutions to market.
However, the taxation debate is fraught with growing risks for Massachusetts as widespread adoption of telecommuting has made it easier for companies to relocate all or part of their operations to other states. A new survey by the management consulting firm McKinsey shows that one-third of surveyed companies have accelerated the digitization of their supply chains, half have sped up the digitization of their customer channels, and two-thirds have moved faster to adopt artificial intelligence and automation.
The last thing we want is for our businesses to pivot their way out of the commonwealth.
“Just as online commerce removed the geographic bond between sellers and customers, telecommuting has loosened the geographic ties between companies and workers. Employers concerned about tax increases in Massachusetts may now elect to locate elsewhere. The barriers for businesses to leave Massachusetts have never been lower,” Regan said.
We must focus on policies that support and strengthen businesses during this difficult time so Massachusetts may emerge from this economic and public- health crisis stronger and better than ever before.
If you would like to learn more about these issues or get more involved with the AIM Taxation Committee please contact your Engagement Director or contact firstname.lastname@example.org or 617-262-1180. (Click here for the Engagement Team)
Massachusetts employers may also make sure their voices are heard with key policy leaders at two upcoming AIM events:
October 22 – Commonwealth Conversation with Secretary Michael Heffernan, Administration and Finance – Register here
November 13 – AIM Executive Forum with Governor Charlie Baker – Register here