MassBenchmarks: Federal Policies Slowing State Growth
As Massachusetts' economy shows signs of improving, federal fiscal policies are holding it back, according to excerpts from the Jan. 21 editorial board meeting of MassBenchmarks, the journal of the state's economy published by the UMass Donohue Institute with the Federal Reserve Bank of Boston.
The board found that the state's recovery from the Great Recession will continue to be stifled by federal policies and that its labor market is facing challenges not reflected in the unemployment rate.
The largest sign of a strengthening economy, the board said, is that the state's housing market is improving as home prices, sales and building permits rise, also increasing construction sector employment. However, employment remains well below pre-recession levels. What the board said are strong sales tax collections also reflect a confidence in consumers in that they're willing to spend money, especially on new automobiles.
Despite these positive signs, the board said growth is being undermined by federal tax and budget policies implemented this year such as an increase in tax rates for upper-income households and the expiration of the payroll tax cut in January. The board found that the payroll tax cut placed a disproportionate burden on low-income households.
"Had these tax increases been offset by increased federal investment, their impact would have been modest, but instead the federal government elected to adopt significant spending cuts," the board said.
Federal budget cuts known as sequestration, which took effect in March, had what the board called an obvious impact on the state's research-intensive organizations and government contractors. Cuts were also felt by educational programs, career centers, job training services and Community Development Block Grants.
According to the editorial board, the impact of the federal government's policies are also seen in MassBenchmarks Current Economic Index, which saw growth in the state's gross domestic product slow to 1 percent in April and May. It also noted that employment has "virtually stalled," as the growth of the state withholding tax shows.
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