“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“A full-throated defense of economic dynamism.” - The Wall Street Journal
AI Summary.An analysis finds a Social Security tax-increase package lowers the debt-to-GDP ratio by 14.3 percentage points, with 97% of that coming from smaller Social Security deficits rather than economic growth. A benefit-reduction package cuts the ratio by 29.2 percentage points, raising long-run GDP by 12.1% versus 0.4%.
Andrew BiggsAmerican Enterprise Institute
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A Penn-Wharton simulation finds that restoring Social Security solvency with tax increases alone would cut debt/GDP by ~14pp by 2060, while a fix based only on benefit cuts would cut it by ~29pp.
How do benefit cuts and tax increases differ in reducing debt-to-GDP?
Core argument: The benefit-reduction package cuts the debt/GDP ratio by 29.2 percentage points in the long run, more than twice the 14.3 percentage points under the tax-increase package.
The first figure [in the gallery] decomposes the tax-increase reform package’s improvement to the debt/GDP ratio into separate effects: how much does it cut debt versus how much does it raise GDP? Almost all of the tax-increase plan’s improvement in debt/GDP comes from lowering federal debt by raising taxes. The plan has a small negative effect on the economy in the short run and a small positive effect in the long run. But 97% of its 14.3 percentage point long-run reduction in debt/GDP comes simply from reducing Social Security’s deficits. The economy is little-changed relative to a baseline in which Congress simply borrows to pay Social Security benefits. The benefit-reduction package [second figure in the gallery] tells a different story. It reduces debt/GDP by 29.2 percentage points, more than twice as much as the tax-increase package. Part of that comes from a larger reduction in debt: 17.2 percentage points versus 13.9. But the real kicker comes from higher long-run GDP: 12.1% under the benefit-reduction package versus just 0.4% under the tax-increase package.
Takeaways by Macro Roundup® AI
The benefit-reduction package cuts the debt/GDP ratio by 29.2 percentage points in the long run, more than twice the 14.3 percentage points under the tax-increase package.
Of the tax-increase plan’s 14.3 percentage point long-run reduction in debt/GDP, 97% comes from reducing Social Security’s deficits, leaving the economy little changed relative to a baseline in which Congress borrows to pay benefits.
Long-run GDP rises 12.1% under the benefit-reduction package versus 0.4% under the tax-increase package, with debt falling 17.2 percentage points versus 13.9.
Related Articles:
The Fairest Way to Reform Social Security May Also Be the Worst Way to Grow the Economy— Fully closing Social Security's funding gap by raising the payroll tax rate would require an immediate, permanent increase from 12.4% to 17.6%, which would reduce labor supply and economic growth. Research on a prior benefit cut found affected Americans raised earnings by 61 cents per dollar of lost benefits, generating additional payroll tax revenue.
How Federal Spending is Distributed by Age— An analysis classifying $4.4tn of $7tn in federal spending by age finds retirees aged 65 and older receive $2.7tn, 38.6% of total outlays and 61.9% of age-assignable spending, versus $1.2tn for working-age adults and $449bn for those under 26. Social Security and Medicare account for 80% of age-assignable spending on older adults.
The Great “Transfer”-mation— Government transfers rose from 8.2% of Americans' total personal income in 1970 to 17.6% in 2022, making them the third largest income source after work and investments. The share of U.S. counties drawing a quarter or more of personal income from transfers rose from under 1% in 1970 to 53% in 2022.
AI Summary.Fully closing Social Security's funding gap by raising the payroll tax rate would require an immediate, permanent increase from 12.4% to 17.6%, which would reduce labor supply and economic growth. Research on a prior benefit cut found affected Americans raised earnings by 61 cents per dollar of lost benefits, generating additional payroll tax revenue.
Andrew BiggsAmerican Enterprise Institute
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Biggs argues that “fair” approaches to restoring Social Security solvency – those that do not cut already accrued benefits – are less effective than “unfair” ones that do, because the latter incentivize increased work effort, raising growth and revenue.
Does closing Social Security's gap with higher payroll taxes hurt growth?
Core argument: Keeping Social Security permanently solvent under the "fairness" model of paying accrued benefits in full would require an immediate and permanent payroll tax increase from 12.4% to 17.6%, which would decrease labor supply and reduce economic growth.
Imagine that Social Security reform follows the fairness model, in which accrued benefits are paid in full but the rate at which future benefits are earned is reduced. A simple way to do this is to increase the payroll tax rate To keep Social Security permanently solvent, meaning through 75 years and beyond, would require an immediate and permanent increase in the payroll tax rate [from] 12.4% to 17.6%. The higher rate would decrease labor supply and reduce economic growth. [Consider] an alternate reform, which looks clearly unfair: fix Social Security’s funding gap entirely by reducing accrued benefits that Americans already have earned. As of 2025, Americans had accrued $54 trillion in Social Security benefits. Social Security’s unfunded obligation as of 2025 was $26 trillion. So, roughly, this means cutting Americans’ “earned benefits” in half. [Analyzing the 1977 reform that undid the notorious 1972 “double-indexing” of benefits, a group of economists], using SSA earnings data, found that, for every dollar of lost benefits, the affected Americans increased their earnings by 61 cents. Moreover, these additional earnings would be taxed by Social Security, further strengthening the program’s finances. In effect, this makes cutting benefits a “cheaper” way to fix Social Security than raising taxes, because people respond in ways that also increase tax revenues.
Takeaways by Macro Roundup® AI
Keeping Social Security permanently solvent under the "fairness" model of paying accrued benefits in full would require an immediate and permanent payroll tax increase from 12.4% to 17.6%, which would decrease labor supply and reduce economic growth.
Americans had accrued $54 trillion in Social Security benefits as of 2025 against an unfunded obligation of $26 trillion, so closing the gap solely by cutting already-earned benefits would mean roughly halving those benefits.
Economists analyzing the 1977 reform that undid the 1972 "double-indexing" of benefits found, using SSA earnings data, that affected Americans raised their earnings by 61 cents per dollar of lost benefits, earnings that Social Security would tax.
Related Articles:
Social Security and Trends in Wealth Inequality— The authors estimate that including Social Security in household wealth leaves top wealth shares little changed over three decades, with the top 10% and top 1% shares rising 1.1 and 1.6 percentage points versus roughly 9 and 6 points for marketable wealth alone. Social Security wealth grew from $7tn to $39tn.
How Federal Spending is Distributed by Age— An analysis classifying $4.4tn of $7tn in federal spending by age finds retirees aged 65 and older receive $2.7tn, 38.6% of total outlays and 61.9% of age-assignable spending, versus $1.2tn for working-age adults and $449bn for those under 26. Social Security and Medicare account for 80% of age-assignable spending on older adults.
The Great “Transfer”-mation— Government transfers rose from 8.2% of Americans' total personal income in 1970 to 17.6% in 2022, making them the third largest income source after work and investments. The share of U.S. counties drawing a quarter or more of personal income from transfers rose from under 1% in 1970 to 53% in 2022.
AI Summary.German federal spending has picked up, with year-to-date outlays from the off-budget military fund up €1.7bn (+44%) from a year earlier and total defence spending up €7.0bn (+34%). Spending from the newly established infrastructure and climate fund came in above expectations at €6.1bn, exceeding the decline in infrastructure items within the main budget.
Niklas GarnadtGoldman Sachs
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German fiscal expansion is underway, led by defense spending, which was up 34% y/y in April. Further buoyed by climate and infrastructure spending above expectations, the widened deficit will add an estimated 0.6pp fiscal impulse in 2026.
Is German federal spending on defence and infrastructure accelerating?
Core argument: Germany's year-to-date spending from the off-budget military fund is up EUR 1.7bn (+44%) from last year, while total defence spending is up EUR 7.0bn (+34%).
Spending in the off-budget military fund (implied by the fund's issuance activity) stood at EUR 1.2bn, slightly higher than our expectation of EUR 1.0bn and also higher than last year's EUR 0.9bn. YTD spending in the military fund is up EUR 1.7bn (+44%) from last year and total defence spending is up EUR 7.0bn (+34%). Spending in the infrastructure fund (implied by the fund's issuance activity) came in at EUR 6.1bn, notably above our expectation. Data on spending in the federal bucket of this fund, which came in at only EUR 0.7bn in April, suggests that the upside surprise came either from disbursement to the states or spending in the climate transformation fund. As the infrastructure & climate fund was only established last autumn, there are no comparable numbers for last year, but total spending out of this fund remains notably higher than the decrease in infrastructure-related items in the main budget compared to last year.
Takeaways by Macro Roundup® AI
Germany's year-to-date spending from the off-budget military fund is up EUR 1.7bn (+44%) from last year, while total defence spending is up EUR 7.0bn (+34%).
April spending in Germany's off-budget military fund, implied by the fund's issuance activity, was EUR 1.2bn, above the EUR 1.0bn expected and last year's EUR 0.9bn.
Spending in Germany's infrastructure fund, implied by the fund's issuance activity, came in at EUR 6.1bn, notably above expectation, with only EUR 0.7bn from the federal bucket, suggesting disbursement to the states or the climate transformation fund.
Related Articles:
Germany Has the Cash to Revitalize Its Economy, but Can’t Seem to Spend It— Germany's large economic stimulus has been slowed by bureaucratic procedures that delay infrastructure spending, though the country suspended planning rules to build three liquefied natural gas terminals in about 10 months instead of the usual five years. A bill in parliament would extend similar streamlining to large infrastructure projects.
Merz’s €600 Billion Defense Push Is Rippling Across Germany— Germany has earmarked an initial €600bn ($687bn) for its military, and streamlined procurement is helping defense producers secure record orders for goods ranging from artillery shells to attack drones, with banks lending more readily. UBS estimates defense will add 0.5 percentage points to German growth by 2028.
The Intellectual Spoils of War? Defense RD, Productivity and International Spillovers— The authors estimate that a 10% increase in government-financed R&D, largely defense, is associated with a 4.3% rise in privately funded R&D across OECD countries, indicating "crowding in" rather than "crowding out." They also find international spillovers raise private R&D abroad, though the overall effect on US productivity growth is modest.
AI Summary.Sweden has opened public services to private providers, with nearly half of primary healthcare clinics privately owned and one in three public high schools privately run, up from 20% in 2011. Its public social spending has fallen to 24% of GDP, similar to the US and below the over 30% in France and Italy.
Tom FairlessWall Street Journal
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Swedish public social spending is now 23.7% of GDP, just 1pp above that of the US and well under France’s 31.6%. Market-based reforms in the 1990s brought overall government spending down from 69.4% to 49.3% in 2024.
How has Sweden shrunk its state by privatizing public services?
Core argument: Sweden's total public social spending, covering healthcare, education and welfare payments, has fallen to 24% of GDP, similar to the U.S. and well below the over 30% of nations like France and Italy.
For decades, Sweden was shorthand for the brand of high-tax, high-spend government that managed people’s lives from cradle to grave through state-run hospitals, schools and care homes. No longer. With little fanfare, this Nordic country of 11 million has embraced capitalism. Today, nearly half of primary healthcare clinics are privately owned, many by private-equity firms. One in three public high schools is privately run, up from 20% in 2011. School operators are listed on the stock exchange. The capitalist makeover has allowed Sweden to do what few industrialized countries have managed in recent years: shrink the size of the state. That has enabled the government to sharply lower taxes and, economists say, sparked a surge in entrepreneurship and economic growth. Its total public social spending bill—which includes healthcare, education and all welfare payments—has fallen to 24% of gross domestic product, similar to the U.S. and well below the over 30% for nations like France and Italy. Sweden’s economy is expected to grow by around 2% a year through 2030, roughly the same pace as the U.S. and double the growth rates of France and Germany, according to an April forecast by the International Monetary Fund.
Takeaways by Macro Roundup® AI
Sweden's total public social spending, covering healthcare, education and welfare payments, has fallen to 24% of GDP, similar to the U.S. and well below the over 30% of nations like France and Italy.
Nearly half of Sweden's primary healthcare clinics are privately owned, many by private-equity firms, and one in three public high schools is privately run, up from 20% in 2011, with school operators listed on the stock exchange.
An April forecast by the International Monetary Fund projects Sweden's economy will grow around 2% a year through 2030, roughly matching the U.S. and double the growth rates of France and Germany.
Related Articles:
How Sweden Overcame Socialism— After government spending reached 70% of GDP and public debt 80% of GDP, Sweden adopted market-oriented reforms including privatized healthcare services, for-profit schools, reduced welfare benefits, deregulation of electricity and transportation, and a corporate tax cut from 28% to 22%. Public debt has since fallen to 41% of GDP, with growth outpacing European Union peers by roughly 1 point annually.
Reforming the Welfare State: Recovery and Beyond in Sweden— Sweden's structural reforms — flexible exchange rates, inflation targeting, a smaller public sector, less generous social insurance, and deregulated markets — accompanied export-led growth, a current account surplus lasting over a decade, government spending falling to 52% of GDP, and central government debt dropping from nearly 80% of GDP to about half that.
The US Has One of the Highest Fertility Rates Among Peer Countries— The tempo-adjusted fertility rate, which accounts for shifts in the timing of births, shows the US rate falling since roughly 2009-10 and dropping below the 2.1 births-per-woman replacement level around 2017, reaching 1.82 in 2022. The US decline is less severe than in many peer countries.
AI Summary.The share of the US population receiving food stamps doubled from 6% to 12% over roughly 25 years, with real costs per capita rising 179% to $279 a year, though both remain below their post-Great-Recession peak. Households with an elderly person now outnumber those with a child, reversing the early-2000s pattern.
Angela RachidiAmerican Enterprise Institute
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About 40mm Americans, 12% of the population, receive SNAP benefits, up from 6% in 2000. In 2023, only 34% of these households included children, down from 49% in 2010, while 36% contained an elderly person, up from 16% in FY2010.
How have food stamp enrollment, costs, and recipient households changed?
Core argument: The share of the U.S. population receiving SNAP doubled from 6% in FY2000 to 12% in FY2025, while real SNAP costs per capita rose 179%, from roughly $100 to $279 per year in 2024 dollars.
Comparing FY2000 with FY2025, the share of the population receiving SNAP doubled from 6% to 12%, while real SNAP costs per capita increased by 179%—from roughly $100 per year to $279 (in 2024 dollars). Despite this growth, per capita participation and costs in FY2025 remained below their pre-pandemic peak in 2013, which coincided with the aftermath of the Great Recession and changes in eligibility and other policies stemming from the 2008 Farm Bill. SNAP is countercyclical, meaning that all else equal, the number of people receiving SNAP should rise during recessions because of increased unemployment and decline as the economy recovers, [though] overall SNAP participation has grown faster than changes in the unemployment rate alone would predict. Over the long run, and especially since FY2020 (due to the Thrifty Food Plan’s increase in the maximum SNAP benefit), costs per capita have not returned to prerecession levels after a period of high unemployment. In FY2023, the share of SNAP households containing an elderly person (36%) exceeded the share containing a child (34%) for the first time. This was a sharp departure from the early 2000s, when more than half of SNAP households contained a child and less than 20% included an elderly person (Figure 2).
Takeaways by Macro Roundup® AI
The share of the U.S. population receiving SNAP doubled from 6% in FY2000 to 12% in FY2025, while real SNAP costs per capita rose 179%, from roughly $100 to $279 per year in 2024 dollars.
In FY2023, the share of SNAP households containing an elderly person reached 36%, exceeding the 34% containing a child for the first time, against the early 2000s when over half contained a child and under 20% included an elderly person.
Related Articles:
The Great “Transfer”-mation— Government transfers rose from 8.2% of Americans' total personal income in 1970 to 17.6% in 2022, making them the third largest income source after work and investments. The share of U.S. counties drawing a quarter or more of personal income from transfers rose from under 1% in 1970 to 53% in 2022.
Poverty and Dependency in the United States, 1939–2023— Extending a consistent poverty measure back to 1939, the authors estimate US absolute poverty fell from 48.5% to 19.5% between 1939 and 1963, driven by growth in market income rather than government transfers net of taxes. Poverty fell no faster in the 24 years after the War on Poverty than before.
Government Benefit Programs Already Do A Lot To Help Low Income Families— For a two-adult, three-child family, existing taxes and government benefits bring take-home resources to about $58,000 with no earnings, $79,000 with $20,000 of earnings, and $90,000 with $80,000 of earnings plus $15,000 in employer health premiums. A $75,000 gap in earnings and work-related benefits narrows to $11,000 in take-home pay.
AI Summary.Germany plans to raise defence spending to €144.9bn, from about €120bn, including roughly €11.5bn in military aid to Ukraine, and government figures point to €188.4bn by 2030, equivalent to 3.7% of GDP and above NATO's 3.5% core military spending requirement for 2035.
Anne-Sylvaine ChassanyFinancial Times
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Germany will increase defense spending ~21% y/y from ~€120B this year to ~€145B in 2027. Berlin is planning on spending ~€188B annually by 2030, ~3.7% of GDP.
Will Germany exceed NATO's military spending target ahead of schedule?
Core argument: Germany will spend €144.9bn on defence in 2027, up from about €120bn this year, according to government figures circulated ahead of a formal announcement.
Berlin will spend €144.9bn for defence in 2027, from about €120bn this year, according to government figures circulated ahead of a formal announcement on Wednesday. The figure for next year includes about €11.5bn in military aid to Ukraine, about the same amount as this year. The country has also set up a special €500bn debt fund to modernise its infrastructure over the next decade. The twin moves have upended years of fiscal orthodoxy as Europe’s largest economy seeks to grow again. Berlin was planning to spend €188.4bn on defence by 2030, according to government officials — including €8.5bn for Ukraine in case the conflict has not ended by then. This would be equivalent to 3.7% of GDP, above the 3.5% Nato core military spending requirements by 2035.
Takeaways by Macro Roundup® AI
Germany will spend €144.9bn on defence in 2027, up from about €120bn this year, according to government figures circulated ahead of a formal announcement.
Berlin plans €188.4bn of defence spending by 2030, equivalent to 3.7% of GDP, above Nato's 3.5% core military spending requirement due by 2035, according to government officials.
Germany's 2027 defence figure includes about €11.5bn in military aid to Ukraine, roughly the same as this year, with €8.5bn set aside for 2030 in case the conflict has not ended.
Related Articles:
Defense Spending: Macroeconomic Consequences and Trade-Offs— Peacetime defense spending booms—when the two-year average of defense outlays rises 1pp of GDP—are followed by sizable increases in real GDP, government consumption, investment, and the capital stock, with a short-lived rise in inflation. Imports accelerate while exports are broadly unchanged, widening current account and trade deficits.
The Intellectual Spoils of War? Defense RD, Productivity and International Spillovers— The authors estimate that a 10% increase in government-financed R&D, largely defense, is associated with a 4.3% rise in privately funded R&D across OECD countries, indicating "crowding in" rather than "crowding out." They also find international spillovers raise private R&D abroad, though the overall effect on US productivity growth is modest.
German Army Struggles to Get Gen Z Recruits ‘Ready for War’— Germany's armed forces commissioner warned the country is not moving closer to its target of 203,000 active troops by 2031, as the military slightly shrank amid high dropout rates, with a quarter of new recruits leaving within six months. Conscientious objector applications reached 2,998, up from 200 in 2021.
AI Summary.The U.S. government has invested $20.9bn across sixteen deals taking direct ownership stakes, expanding beyond its traditional toolkit of grants, loans, and tax incentives. The Department of Defense leads with seven deals, the Department of Commerce has six including a 10% stake in Intel, and partners have mobilized an additional $4.75bn.
Jonathan HillmanCouncil On Foreign Relations
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Since January 2025, the USG has taken equity stakes totaling $20.9B in 16 American businesses. $8.6B, ~41% of the total, was invested in critical mineral miners and processors, while $8.9B, ~43% of the total, funded the government’s 10% stake in Intel.
Is the U.S. government taking direct equity stakes in companies?
Core argument: Since January 2025, the U.S. government has invested $20.9 billion across sixteen deals involving direct ownership, broadening a toolkit traditionally focused on grants, loans, and tax incentives.
Since January 2025, the U.S. government has invested $20.9 billion across sixteen deals involving direct ownership, broadening a toolkit that has traditionally focused on grants, loans, and tax incentives. The Department of Commerce has participated in six such deals, including taking a 10% stake in Intel. The Development Finance Corporation, the United States’ development bank, has executed three equity transactions in critical minerals, healthcare, and infrastructure. The Department of Defense leads the way with seven such deals. The U.S. government is also working with a range of partners and has mobilized an additional $4.75 billion in investment. Private co-investors include J.P. Morgan, Goldman Sachs, and others.
Takeaways by Macro Roundup® AI
Since January 2025, the U.S. government has invested $20.9 billion across sixteen deals involving direct ownership, broadening a toolkit traditionally focused on grants, loans, and tax incentives.
The Department of Defense leads with seven direct-ownership deals, followed by the Department of Commerce with six, including a 10% stake in Intel, while the Development Finance Corporation has executed three equity transactions in critical minerals, healthcare, and infrastructure.
The U.S. government has mobilized an additional $4.75 billion in investment alongside private co-investors including J.P. Morgan and Goldman Sachs.
Related Articles:
Industrial Policy and Economic Security— Industrial policy justified on national security grounds requires weighing how much economic inefficiency is worth tolerating, since costs incurred today make a country poorer and therefore less able to project power later. The calculation is difficult because security gains are probabilistic and long-term economic costs are speculative.
The Cold War and the U.S. Labor Market— The authors estimate that declining U.S. military procurement spending from the 1950s to the 1990s explains roughly 18–30% of the decline in manufacturing employment and just under 10% of the rise in top-decile income inequality. They argue Cold War procurement raised demand for manufacturing workers and helped sustain tight labor markets for low-skill workers.
Capital Is Making a Comeback— Tangible investment in property, factories and equipment fell from 12.5% to 8.5% of private gross domestic product, while intangible investment in intellectual property, software and process knowledge rose from about 11.5% to 16.75%. The author argues demand for tangible capital investment will now have to rise.
AI Summary.Massachusetts caps annual property tax revenue growth at 2.5% unless voters approve an override, and South Hadley voters rejected ballot measures meant to close a $3m deficit driven partly by a 42% jump in healthcare costs and reduced state aid. Municipalities nationwide face the end of federal pandemic aid, higher costs, and state-imposed revenue limits.
Scott CalvertWall Street Journal
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Voters in South Hadley, MA overwhelmingly rejected a property tax increase by 65 to 34%, that advocates argued was needed to prevent steep cuts in education spending, in part due to a 42% increase in the town’s health care costs.
Will voters reject property tax increases as local budget deficits grow?
Core argument: South Hadley, Massachusetts voters rejected two ballot questions that would have permanently lifted the sum the town can raise through property taxes well above the current $35 million, leaving a $3 million deficit.
Massachusetts law largely caps annual property tax revenue increases at 2.5%. Anything more requires a voter-approved override. Facing a $3 million deficit, South Hadley’s elected selectboard put [two] override questions on the ballot. Either would have permanently lifted the sum that can be raised via property taxes well above the current $35 million. South Hadley’s fiscal plight, driven partly by a 42% jump in healthcare costs and reduced state aid, is a preview of what other communities nationwide can expect, according to Chris Morrill, chief executive of the Government Finance Officers Association, which represents public-finance officials in the U.S. and Canada. Towns across the U.S. are grappling with the end of federal pandemic aid that propped up budgets, along with higher municipal costs and, in many cases, state-imposed revenue limits.
Takeaways by Macro Roundup® AI
South Hadley, Massachusetts voters rejected two ballot questions that would have permanently lifted the sum the town can raise through property taxes well above the current $35 million, leaving a $3 million deficit.
Massachusetts law largely caps annual property tax revenue increases at 2.5% unless voters approve an override, and South Hadley's shortfall was driven partly by a 42% jump in healthcare costs and reduced state aid.
Chris Morrill, chief executive of the Government Finance Officers Association, says South Hadley's fiscal plight previews what other U.S. communities can expect as federal pandemic aid ends alongside higher municipal costs and state-imposed revenue limits.
Related Articles:
Massachusetts Loses Billions in Income After Millionaire Tax— Internal Revenue Service data show residents leaving Massachusetts took a net $4.2bn in adjusted gross income with them, an 8% year-over-year increase, in the first year of a 4% surtax on incomes above $1m, though the number of departing taxpayers slowed. Net outflows predate the surtax, and surtax collections have risen every year.
The Robin Hood State Is Coming For The Rich— In the US, increased redistribution has offset rising pre-tax inequality: Congressional Budget Office data show inequality of taxable income near record highs while inequality after taxes and transfers was lower than in several earlier years and only slightly above 1986. The top 1% of earners paid 40% of income tax in 2022, up from 33% in 2001.
Behavioral Responses to State Income Taxation of High Earners: Evidence from California— A California ballot measure raising top marginal income tax rates by up to 3 percentage points prompted an additional 0.8% of the affected tax base to leave the state, with an estimated income elasticity of 2.5–3.2 for high earners who stayed. The authors estimate these responses eroded 45.2% of windfall revenues within one year and 60.9% within two.
