Lawmakers thinking about economy as they consider Patrick's tax plan

BOSTON (State House News Service) - In the face of numerous hurdles, the Massachusetts economy in 2012 grew at its slowest clip of the year in the fourth quarter, slowing to an annualized growth rate of 1 percent, according to data released Wednesday.

However, economic analysts affiliated with the MassBenchmarks bulletin, which is published by the UMass Donahue Institute, say the state economy is “poised for faster growth” in 2013 after real gross state product grew 2.1 percent in 2012 while the U.S. economy grew about 1.5 percent last year.

Real gross state domestic product increased at an annual rate of 1 percent during the fourth quarter of 2012, after growing 2 percent, 2.6 percent and 2.9 percent, respectively, in 2012’s first three quarters. The federal government reported United State real GDP rose at an annual rate of 0.1 percent in the fourth quarter.

“Massachusetts outpaced the nation, but that’s not saying all that much this quarter,” said Dr. Michael Goodman, co-editor of the bulletin and associate professor of public policy at UMass Dartmouth.

The new data arrived as the state Legislature reviews Gov. Deval Patrick’s $34.8 billion budget proposal and his call for a long menu of tax increases that would net state government $1.9 billion in annual revenue if approved. Lawmakers and Patrick are also trying to close an estimated $540 million deficit in this year’s state budget that developed when tax collections fell short of official estimates.

The bulletin’s leading index suggests the state economy is expected to grow at an annualized rate of 3.6 percent over the first half of 2013. As reasons for optimism, authors cited recent employment gains, spending on motor vehicles, and a “surging” stock market, with the Bloomberg stock index for Massachusetts up nearly 10 percent since the beginning of December.

State budget writers in the Legislature and the Patrick administration agreed on an estimate for revenue collections for the 2014 state budget forecasting a slightly higher rate of tax revenue growth of 3.9 percent.

Goodman said the state’s economic recovery is proceeding “fundamentally” but is being held back by national and international political and economic issues and forces that are difficult to handicap. The federal government’s near-term treatment of a debt ceiling extension and scheduled spending cuts that threaten defense and innovation industries in Massachusetts will influence the state’s economic prospects.

“It’s appropriate to be cautiously optimistic but also to recognize that our fate is in the hands of our federal officials in terms of the near-term outlook,” Goodman said.

Analysts said the moderate growth in the fourth quarter occurred despite forces working against growth, including “a faltering European economy, falling merchandise exports, weak national and international markets for information technology products, and policy uncertainty related to the so-called fiscal cliff,” the broad term assigned to the tax and spending questions facing President Obama and Congress.

On the jobs front, payroll employment in Massachusetts grew 1.6 percent from December 2011 to December 2012, according to the bulletin, which cited U.S. Bureau of Labor Statistics data, compared to a reported 1.4 percent growth in payroll employment nationally.

Bulletin authors cautioned that employment data revisions expected early this year “could significantly alter our understanding of the Commonwealth’s economic performance in 2012.” It’s difficult to predict the direction of the revision, Goodman said, but judging in part from recent state withholding tax collection numbers, he said, “I would expect the revisions to be downward.”

Gov. Patrick wants the sales tax cut to 4.5 percent and the income tax raised to 6.25 percent, and has proposed the elimination of 45 personal tax exemptions, scrapping some corporate and personal tax deductions, allowing regular hikes in transportation fees, raising the cigarette tax, eliminating the sales tax exemption on candy and soda, expanding the bottle redemption law, and doubling personal exemptions.

Patrick has deflected criticism that it’s the wrong time to raise taxes by making the case that Massachusetts can “choose growth” by raising taxes and spending the new revenues on education and transportation investments that he believes will accelerate economic growth, build on the state’s economic strengths, and make Massachusetts more attractive to private sector investors.

Republican Charles Baker, who lost the 2010 race for governor to Patrick after repeatedly predicting that the governor would press major tax hikes in his second term, was not available after Patrick unveiled his tax plans in his recent State of the State address. But Baker, who may again seek the governorship in the wide open 2014 race, argued against raising taxes in a Jan. 28 opinion piece in the Boston Herald.

Baker warned that Patrick’s tax hikes would come with an “economic development