FACT CHECK: What Question 5 Would Change About Massachusetts’ Revenue Growth Limit

Massachusetts – like many other states – has a limit on how much the state can collect in taxes. When tax revenues grow faster than taxpayers’ wages, the state can return excess funds back to taxpayers. In the Commonwealth, this limit is known as Chapter 62F.

But our revenue growth limit hasn’t been updated since it was first installed in the 80’s. Like many things from the last century, they usually need some refining to bring them into the 21st.

A proposed update to how this limit is calculated would more closely tie it to what the state actually collected in taxes from the previous year, instead of a projected number. This would strengthen an important guardrail on state spending while providing more taxpayer refunds.

We break down the facts and the myths about the law and what a proposed revision would do for taxpayers and the state as a whole.

FACT: Updating Our Revenue Limit Would Not Cut State Spending Or Taxes

In a recent Boston Globe op-ed, MIT professor Jonathan Gruber claims that had this revenue growth limit been in place since 2011, our state budget would be 14% smaller today. He argues that as a result, state funding to key areas like education would be cut.

This argument is wrong, for two reasons. First, this measure does not cut taxes or government programs – it simply allows them to grow every year in line with taxpayers’ wages. The only way state collections can go down is because of economic and population factors, nothing to do with the revenue growth limit.

Second, even if the budget was 14% smaller today, it would still represent an 85% increase in state spending from 2011 until now, including a more than $9 billion increase in the last five years.

The state makes its budget on projected revenue estimates for the upcoming year. But it is wholly up to state lawmakers to decide how that money gets spent. 

Executive Director of the Pioneer Institute Jim Stergios wrote in the Boston Globe: 

“[The revised revenue growth limit] doesn’t cut taxes, freeze revenues, or shrink state government. It restores the bargain voters struck 40 years ago: Government can grow but not faster than the wages and salaries of the people paying the bills.”

FACT: The State Would Be Able To Build Up Its Rainy Day Fund As Usual

Gruber also claims the proposed changes to the revenue growth limit would hurt the state’s ability to build up and replenish its rainy day fund.

It’s a valid concern, and one reason why the current law has a “no decline” mechanism already built in. This proposed update would not change that. 

This guards against Gruber’s concerning scenario. In times of economic downturn when the state is not collecting as much, the growth limit cannot be less than it was the previous year. This gives the state a substantial cushion during lean revenue years, and allows the state to save funds as it builds back toward pre-downturn revenue levels.

FACT: Current Law Provides Equal-Dollar Refunds to Eligible Taxpayers

Gruber also ignores a key element of the current law: in the event a refund is triggered by revenues higher than the limit, all taxpayers receive the same dollar amount back.

This feature was enacted by the state legislature and signed by Governor Maura Healey in 2023, and the current proposed changes would not affect this part of the law.

ANALYSIS: The Proposed Formula Is Expected to Produce More Frequent Refunds

Several analyses on the impact of the proposed revenue limit all come to a similar conclusion: tying the revenue growth limit to actual tax collections would result in more refunds.

MOA estimates there were up to 20 years where a refund could have been triggered if this proposed change was put in place earlier, instead of just two. A recent Tufts report finds in the future, taxpayers could receive up to four times as many tax refunds as they have in the past. 

The Massachusetts Taxpayers Foundation estimated that just in the last decade, the proposed change could have delivered up to $1,095 in returned funds to tax filers. Going forward, that could translate to a substantial injection of cash for Massachusetts residents to pay rent, energy bills, childcare, and other costs.

Conclusion

Since 2010, Massachusetts state government spending has skyrocketed 135 percent, from $27 billion to more than $63 billion. The state’s tax revenue has increased even faster – more than 140% – dispelling fears the state can’t afford to curb its unfettered growth in revenue.

But taxpayers can’t shoulder an ever-increasing bill for too long. It’s a problem that’s causing residents to leave for lower-tax, lower-cost places to live.

The state is already making an effort to solve this crisis, including the Governor’s recently-formed Competitiveness Council and various proposed cost relief measures for residents and businesses.

The debate over Question 5 raises an important competitiveness question for Massachusetts: how should growth in state revenues relate to growth in the wages and salaries of the taxpayers supporting the government? Whatever conclusion voters reach, that debate should begin with an accurate understanding of what the proposal does—and does not do.