It is not asking too much of legislators and governors that they learn from the experiences of their predecessors in public office. Yet when it comes to the devastating effect that economic cycles can have on state budgets, we seem doomed to repeat history.
Legislators and the governor are struggling to put together a budget for the coming fiscal year while scrambling to find the money to cover the current year's spending.
The national recession has hammered tax revenues. In Massachusetts, revenues have lagged projections every month this year. Capital gains revenue — the tax on the increase in value of an asset, such as stock — has been particularly hard hit.
In 2008, Massachusetts collected more than $2 billion in capital gains taxes. For fiscal year 2010, the Massachusetts Taxpayers Foundation estimates the state will take in just $666 million — a $1.3 billion drop.
This is virtually identical to the fiscal crisis Massachusetts faced in 1988. Yet the fall-back solution in both cases has been to raise taxes.
The $27.4-billion budget passed by the Legislature last week features a host of new taxes, the most prominent of which is a 25 percent hike in the sales tax, from 5 percent to 6.25 percent.
Legislators must stop relying on highly volatile revenue sources, such as capital gains taxes, which all but evaporate in a recession. And most importantly, they must be willing to spend less. If legislators cannot summon the will to make major changes in the state's spending habits in tough economic times like these, they never will.
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