MTF has revised its FY 2021 tax revenue forecast to include the impact of the COVID-19 pandemic. We project a decline of $4.4 billion or 14.1% from the January 2020 benchmark. The forecast assumes new virus cases peak in April, abate in June, and economic re-engagement can begin in early July.
Massive layoffs of 570,000 in Q4 FY 2020, nearly half of which are from lower-income workers in the leisure and hospitality sector, will push the unemployment rate to nearly 18 percent. A slow recovery will cause withholding taxes to decline by $1.2 billion in FY 2021. Shutting down economic activities and the loss of personal income will cost the state $1.5 billion in sales tax revenues largely from plummeting meals and motor vehicle sales.
There are several downside risks to the forecast, including whether: 1) a medical treatment can be found and mass testing and contact tracing can be instituted, 2) Massachusetts suffers a more severe economic impact than rest of the country, 3) federal resources are sufficient to mitigate the economic damage, and 4) the Federal Reserve’s fire wall between the real economy and the financial system can be sustained.