The state’s reliance on capital gains taxes has left it vulnerable to economic downturns, according to a new policy brief by MassINC.
The brief says Massachusetts’ state budget is the third most reliant in the nation on capital gains. Since capital gains taxes are levied on trades of stocks, bonds, real estate and other investments, they are especially vulnerable to the market’s boom and bust cycles.
While the dependence on capital gains taxes has grown, the brief says, the state’s rainy day fund has declined by almost $400 million since 2002.
The brief recommends establishing a new capital gains reserve account, using excess revenue to build the stabilization fund and broadening the sales tax as an alternative revenue source.
