BOSTON – The fiscal policies of the federal government are slowing the economy in the Bay State, according to the latest report from the MassBenchmarks editorial board, released Thursday.
MassBenchmarks is the journal of the Massachusetts economy published by the University of Massachusetts’ Donahue Institute in collaboration with the Federal Reserve Bank of Boston.
“Even as the Massachusetts economy shows some genuine signs of strength, contractionary federal government fiscal policy is manifestly slowing economic growth in Massachusetts,” said the board’s report.
As the economic growth of Massachusetts continues to slow, the state’s labor market continues to bear “considerable stress” and faces “profound challenges that are not fully reflected in the state’s headline unemployment rate,” said the report.
Massachusetts’ jobless rate still remains one percentage point less than the national average.
The report called the housing market the “most prominent” sign of strength in the state’s economy, with residential home prices, sales and building permits all on the rise. As building permits have picked up, so has employment in the construction sector, though the report added that it remains “well below” pre-recession levels.
According to the board, strong state sales tax collections reflect the willingness of Massacshustts households to spend, especially on new automobiles.
“But these signs of life are being undermined by federal tax and budget policies that have been implemented since the first of the year,” said the report, pointing first toward tax-related issues. On the first of the year, income tax rates were increased for upper income households and the temporary payroll tax cut implemented during the recession was not extended.
“This has a more widespread impact, with a disproportionate burden being placed on low-income households,” said the report. “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.”