It's All New York's Fault
On top of generally wrecking the economy, Wall Street’s recent implosion has taken Massachusetts’ budget down with it. Since 2001, the state government has relied heavily on capital gains for income, and until recently capital gains taxes-taxes on profits from investments-have been soaring. (Job growth, by contrast, hasn’t.) Bottom line: It was the stock market that paced a $6 billion expansion in state spending since 2001.
But as portfolios evaporate, so, too, do the taxes they fuel. Capital gains taxes could fall by almost $1 billion this year, accounting for more than half of next year’s multibillion-dollar state deficit. So how did our budget become so dependent on the Dow? Time for a history lesson, in seven easy steps.
1. The most recent troubles go back to the buyouts of Boston giants like Fleet, John Hancock, and Gillette, along with the 2001 recession, which claimed 100,000 jobs in Massachusetts.
2. That recession was caused, of course, by the bursting of the dot-com bubble-a bubble that swelled here because technology companies invested in the Internet and had for ages fed off our educated workforce.
3. They invested in the Internet because, in the 1980s and early 1990s, the personal computer killed off the high-tech electronics companies (such as Digital and Wang) that made calculators, word processors, and proto-computers.
4. Our economy came to rely on high-tech electronics companies because, in the 1950s, Massachusetts saw high-tech product development as the future.
5. The state leaned so heavily on those technologies because the rest of the economy was in ruins after World War II-and had been for some time.
6. Tech rescued the region from a 40-year slump brought on by the collapse of shoe and textile factories in 1921, caused by competition from cheap southern labor.
7. Of course, the only reason Massachusetts wove and made shoes at all was because it didn’t have a whole lot else going for it, aside from a couple of rivers. Late-19th-century competition from New York had ended Boston’s reign as the nation’s preeminent port, and New York merchants controlled the country’s eastern railroads, setting the rails’ freight rates-which were skewed to chase business away from Boston.
Done in by New York. Yet again.