Further details are shown in Table 1. These results reflect the fact that lower taxes reduce the cost to Massachusetts employers of attracting labor from other states. A billion-dollar tax cut is thus affordable. Table 2a shows our forecasts of state revenue, spending and surplus through 2005. While the tax cut will require a temporary reduction in spending growth and will bring about temporary deficits, the impact will be so small as to be almost unnoticeable.
Data refer to calendar years.
Data for 1999 and part of 2000 come from Federal Reserve Bank of Boston and New England Economic Project. These, they say, are enough to tide the state over any rocky period that might lie ahead. We find that if Massachusetts were to face a recession as early as 2003, it would have the resources needed to avoid a fiscal crisis, while at the same time maintaining spending. Table 2b shows our forecasts of state revenue and spending on the assumption that the U.S. goes into a recession in 2003. This represents less restraint on spending than occurred when Massachusetts went through a recession in the early 1990s.