CLT
UPDATE
Thursday, June 16, 2005
Democrats in Legislature swing at strike three
in capital gains fiasco
Governor Mitt Romney yesterday filed legislation to
return approximately $250 million in 2002 state capital gains taxes to
145,000 investors, leading several strategists to suggest the Republican
governor was aiming his antitax message at presidential primary voters
as much as Massachusetts taxpayers....
Romney argues that pushing the date back to Jan. 1, 2002, which will
happen automatically under the terms of the SJC decision, would be
unfair because it would tax gains retroactively, to a period when
investors could not have been aware of the tax impact of their
transactions.
"It is fundamentally unfair to tax people retroactively," Romney said in
a news release yesterday. "If we are to keep faith with the taxpayers of
Massachusetts, we need to correct the constitutional error that occurred
here." ...
"The truth is, this is another example of Mitt Romney selling out the
people of Massachusetts in order to boost his credentials as a
hard-liner on the national stage as he gets ready for a presidential
run," said state Representative J. James Marzilli Jr., an Arlington
Democrat who took part in an unsuccessful effort to strike a compromise
solution to the capital gains dilemma....
"We don't have a quarter of a billion dollars to burn, and this money
belongs to the taxpayers of Massachusetts, and not a handful of
millionaires." ...
"We don't have a quarter of a billion dollars to burn, and this money
belongs to the taxpayers of Massachusetts, and not a handful of
millionaires." ...
"There's nothing unfair about saying our highest-earning taxpayers
should pay at the same rate on their capital gains income that ordinary
taxpayers pay on their wages," said Noah Berger, executive director of
the Massachusetts Budget and Policy Center, a liberal watchdog group....
Michael Widmer, president of the
Massachusetts Taxpayers Foundation, a
business-backed watchdog group, agreed that rolling the effective date
of the capital gains rate change to Jan. 1, 2002, was "unfair." He said
that Romney's plan, however, would do damage to the fiscal health of the
state and that the money would have to come from reserve accounts.
Widmer added that he has strong doubts
Democratic leaders in the House and Senate have any intention or desire
to go in the same direction as Romney in response to the SJC ruling.
"There's talk of [higher funding for] early childhood education, higher
education fund restoration, and healthcare coverage expansion," Widmer
said. "There's enormous pressure and a lot of important needs to be
addressed." ...
Barbara Anderson, executive director of the antitax group
Citizens for Limited Taxation, saw it differently.
"Massachusetts voters don't elect Republican governors to get things
done: We choose them to defend ourselves against things being done to
us!" Anderson said yesterday in an e-mail. "This cap gains issue is a
perfect example of that."
The Boston Globe
Saturday, June 11, 2005
Romney bill aims to rebate 2002 capital gains taxes
Governor's move sparks debate
Well now, Gov. Mitt Romney wants to throw taxpayers one sweet
surprise - a $275 million capital gains tax refund, for those caught up in the
mess created by the Legislature in 2002.
The ill-conceived and poorly crafted expansion of the capital gains tax - which
changed the tax rates as of May 1, 2002, went up to the Supreme Judicial Court
not once but twice. And twice the court ruled that lawmakers couldn't change the
tax rules in the middle of a tax year....
Now at the time Romney administration Revenue Commissioner Alan LeBovidge was
already frothing at the mouth to collect back taxes from those who paid at the
lower rate. "The bills will be in the mail" by the thousands, he said at the
time of the court ruling.
The governor was searching for a way to have it all - not to collect back taxes,
but to issue a tax credit (rather than a refund) for those who paid at the
higher rate - something that sounded suspiciously like what the court had
already turned down.
Well either he got some good legal advice or good political advice - or both
- because yesterday Romney announced he was filing a bill to do exactly what the
court said the Legislature could do - set the effective date at Jan. 1, 2003.
A Boston Herald editorial
Saturday, June 11, 2005
Gov seizes chance to get a tax cut
About 80,000 of the 120,000 investors who owe Massachusetts
capital gains taxes from 2002 after a recent Supreme Judicial Court ruling would
be spared under a proposal making its way through the Legislature.
The proposal, part of a broader tax measure the Joint Committee on Revenue
approved yesterday, exempts anyone whose state capital gains tax bill for the
first four months of 2002 would be $100 or less....
The effort is the latest attempt to minimize the fallout from the Legislature's
2002 decision to raise capital gains taxes as of May 1, 2002....
"I agree this is not easy, but who's going to pay for the $275 million you'd
give back?" said Senator Cynthia S. Creem, the Newton Democrat who cochairs the
Revenue Committee. "You're going to cut services. Somebody is going to have to
pay for it, one way or another."
The Boston Globe
Wednesday, June 15, 2005
House to take up tax compromise
Gives 80,000 who owe for '02 a break
CLT supports Governor Romney’s solution to the 2002
Legislature’s capital gains tax fiasco
This is not meant to criticize the 2005 Legislature, which we hope will clearly
see the mistake its predecessor made in 2002. But as fiscal insanities go, this
one was a doozy.
As part of the biggest tax increase in state history, in June 2002, the
Legislature not only froze the income tax rollback, but increased the capital
gains tax rate....
It was clear to CLT from the beginning that the state couldn’t legally change
the capital gains tax rate in the middle of the year, either. Eventually the
state Supreme Judicial Court made that clear to everyone and wants the state to
choose either Jan. 1, 2002, or Jan. 1, 2003 as the beginning date of the higher
tax, so that all taxpayers are charged the same rate on their capital gains for
2002.
CLT MEMO to the House of Representatives
June 15, 2005
Re: Capital Gains Tax Fiasco
The latest tax "compromise" crafted by the Massachusetts
Legislature is nothing if not creative. But the issue will be what it has always
been - is it constitutional? And the answer is oh-so-likely to be no....
Twice the state's Supreme Judicial Court has told lawmakers they can't create
two classes of taxpayers by making them pay at different rates in the same year,
depending on when they sold a taxable asset....
So days after Gov. Mitt Romney finally concedes that the state should simply
give the $275 million back to those who paid it for 2002, what does the Joint
Committee on Revenue do? Well, they construct yet another constitutional
abomination.... So this time they divide taxpayers not by a date, but by what
they owe. If anything that may be even more offensive, dividing taxpayers by
income - providing a kind of back-door graduated tax.
A Boston Herald editorial
Thursday, June 16, 2005
Some tax 'compromise'
It was clear to CLT from the beginning that the state
couldn’t legally change the capital gains tax rate in the middle of the year,
either. Eventually the SJC made that clear to everyone and wants the state to
choose either Jan.1 , 2002,or Jan. 1, 2003 as the beginning date of the higher
tax, so that all taxpayers are charged the same rate on their capital gains for
2002....
The House compromise is still unconstitutional as well as incredibly unfair. A
very wealthy person who just happened to have a small capital gain in 2002 would
be excused from the retroactive tax, while the person who sold his property in
preparation for retirement, getting his only capital gain ever, would be taxed
retroactively. This is a pathetic attempt to avoid doing the right thing, which
Governor Romney has proposed.
CLT MEMO to the Massachusetts Senate
June 16, 2005
Re: Legislature’s capital gains tax fiasco
Chip Ford's CLT Commentary
"We don't have a quarter of a billion dollars to
burn, and this money belongs to the taxpayers of Massachusetts, and not
a handful of millionaires," decreed state Rep. Marzilli (D-Arlington).
"I agree this is not easy, but who's going to pay for
the $275 million you'd give back?" echoes state Sen. Cynthia S. Creem
(D-Newton), cochairman of the the Revenue Committee. "You're going to
cut services. Somebody is going to have to pay for it, one way or
another."
And thus is summed up just to whom legislative
Democrats believes all money belongs -- and when they say "the taxpayers"
I can only marvel at their crass duplicity. Rep. Marzilli is scheming to
take hundreds of millions from "the taxpayers" to give it to
"the taxpayers"? -- and he says a ridiculous thing like this with I
assume a straight face!
Only in Taxachusetts will the Legislature, finding
that it's dug itself into a deep and gaping trench, keep digging the hole deeper. In its insatiable greed to tax its citizenry to death it screwed up
once, and got slapped down by the state's highest court. So it screwed
up a second time trying desperately to cling to ill-gotten tax proceeds,
and got slapped down again. So, up at bat for the third time, instead of
trying to get it right at last, this time what does "The Best Legislature Money
Can Buy" do?
It proposes yet another unconstitutional
"compromise"
of course, that the court will again have to whack down.
Why? Because Democrats in the Legislature would rather look ridiculous (who'd notice any
more?) than do the honorable thing (and shock us), part with taxpayers'
money it's managed to extract legally or otherwise. As the
Democrat majority always sees it, "it's MINE now!" -- and More Is Never Enough,
and never will be.
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|
Chip Ford |
The Boston Globe
Saturday, June 11, 2005
Romney bill aims to rebate 2002 capital gains taxes
Governor's move sparks debate
By Raphael Lewis, Globe Staff
Governor Mitt Romney yesterday filed legislation to return approximately
$250 million in 2002 state capital gains taxes to 145,000 investors,
leading several strategists to suggest the Republican governor was
aiming his antitax message at presidential primary voters as much as
Massachusetts taxpayers.
Beacon Hill Democrats have shown little appetite to rebate the 2002
capital gains taxes, which are at the center of a Supreme Judicial Court
decision earlier this year. As a result, Democrats and Republicans alike
yesterday speculated that the governor, who is weighing a run for the
White House in 2008, was sending a signal to conservatives beyond the
Bay State.
"Primary voters and general election voters want to know, 'Do you cut
taxes when you have the chance, [and] have you fought for that hard?"'
said Grover Norquist, president of Americans for Tax Reform, a
politically influential antitax advocacy group based in Washington. "If
you've tried, you've signaled your intentions. It tells you, given a
Republican House and Senate [in Washington], these are the sorts of
things I'd be doing."
Norquist earlier this year was sharply critical of Romney's proposal to
close $170 million in corporate tax loopholes, saying the package was
tantamount to imposing "stupid tax laws in a Draconian way." Less than a
month later, Romney backed off his plan, saying it would hurt the
state's efforts to attract new employers.
In an interview yesterday, Norquist said Romney's staff has kept in much
closer contact with Americans for Tax Reform since then, and a month
ago, Romney took part in a nationwide conference call with the group's
members to discuss tax policy.
Romney's proposal comes nearly two months after the Supreme Judicial
Court ruled that a 2002 change to the state's capital gains tax rate was
unconstitutional because it took effect on May 1, 2002, almost halfway
into the tax year. The court said the Legislature had two options: roll
back the effective date of the rate change to Jan. 1, 2002, which would
mean collecting an additional $150 million from 120,000 taxpayers who
saw capital gains between Jan. 1, 2002, and April 30, 2002; or push the
effective date forward to Jan. 1, 2003, and return between $225 million
and $275 million in capital gains taxes the state has already collected.
Romney argues that pushing the date back to Jan. 1, 2002, which will
happen automatically under the terms of the SJC decision, would be
unfair because it would tax gains retroactively, to a period when
investors could not have been aware of the tax impact of their
transactions.
"It is fundamentally unfair to tax people retroactively," Romney said in
a news release yesterday. "If we are to keep faith with the taxpayers of
Massachusetts, we need to correct the constitutional error that occurred
here."
Democrats and a liberal watchdog group, however, said Romney's response
to the SJC ruling is even more unfair because it would wipe out any
taxes on a wide array of capital gains from 2002, even though low- and
middle-income wage earners paid 5.3 percent on their wages at that same
time. Under the old capital gains tax rate structure, gains on assets
held six years or more were not subject to any taxes, and gains on other
investments ranged from 1 percent to 5 percent.
"There's nothing unfair about saying our highest-earning taxpayers
should pay at the same rate on their capital gains income that ordinary
taxpayers pay on their wages," said Noah Berger, executive director of
the Massachusetts Budget and Policy Center, a liberal watchdog group.
Berger's organization, in analyzing 2001 state tax data, has determined
that three-quarters of the tax money that would be returned by Romney's
bill would go to households that averaged $1.5 million in annual income.
Some legislative Democrats view Romney's filing of the tax rebate bill
in purely political terms, and not as a bid to pad the wallets of the
rich in Massachusetts.
"The truth is, this is another example of Mitt Romney selling out the
people of Massachusetts in order to boost his credentials as a
hard-liner on the national stage as he gets ready for a presidential
run," said state Representative J. James Marzilli Jr., an Arlington
Democrat who took part in an unsuccessful effort to strike a compromise
solution to the capital gains dilemma.
"We don't have a quarter of a billion dollars to burn, and this money
belongs to the taxpayers of Massachusetts, and not a handful of
millionaires."
A Republican strategist with close ties to the Romney administration
said yesterday that he also tended to view Romney's tax-rebate bill as
more of a symbolic gesture than an earnest attempt to push though
legislation.
"It builds a record even if it goes nowhere," the strategist said of the
bill. "Tax cutting is certainly popular in Republican primaries, and
they got knocked around pretty good by Grover Norquist on the tax
loopholes. There's some sensitivity there."
Eric Fehrnstrom, Romney's communications director, said the governor was
only doing what he believes is right.
"This has nothing to do with politics and everything to do with treating
our taxpayers with the respect they deserve and maintaining a system of
taxation that is fair, honest, and transparent," Fehrnstrom said.
Michael Widmer, president of the Massachusetts Taxpayers Foundation, a
business-backed watchdog group, agreed that rolling the effective date
of the capital gains rate change to Jan. 1, 2002, was "unfair." He said
that Romney's plan, however, would do damage to the fiscal health of the
state and that the money would have to come from reserve accounts.
Widmer added that he has strong doubts Democratic leaders in the House
and Senate have any intention or desire to go in the same direction as
Romney in response to the SJC ruling.
"There's talk of [higher funding for] early childhood education, higher
education fund restoration, and healthcare coverage expansion," Widmer
said. "There's enormous pressure and a lot of important needs to be
addressed."
Barbara Anderson, executive director of the antitax group
Citizens for Limited Taxation, saw it differently.
"Massachusetts voters don't elect Republican governors to get things
done: We choose them to defend ourselves against things being done to
us!" Anderson said yesterday in an e-mail. "This cap gains issue is a
perfect example of that."
Return to top
The Boston Herald
Saturday, June 11, 2005
A Boston Herald editorial
Gov seizes chance to get a tax cut
Well now, Gov. Mitt Romney wants to throw taxpayers one sweet surprise -
a $275 million capital gains tax refund, for those caught up in the mess
created by the Legislature in 2002.
The ill-conceived and poorly crafted expansion of the capital gains tax
- which changed the tax rates as of May 1, 2002, went up to the Supreme
Judicial Court not once but twice. And twice the court ruled that
lawmakers couldn't change the tax rules in the middle of a tax year.
That amounts to creating two classes of taxpayers.
So the state was faced with either collecting $160 million in back taxes
or refunding the $275 million already paid at the higher rate by 145,000
taxpayers.
In the SJC's second decision, issued in April, Justice Martha Sosman
writing for the court said, "The Legislature, but not this court, may
decide that the current fiscal climate, the administrative difficulties
of collection and enforcement and the burden on taxpayers who must amend
their 2002 returns ... make it advisable to select a Jan. 1, 2003,
effective date."
Now at the time Romney administration Revenue Commissioner Alan LeBovidge
was already frothing at the mouth to collect back taxes from those who
paid at the lower rate. "The bills will be in the mail" by the
thousands, he said at the time of the court ruling.
The governor was searching for a way to have it all - not to collect
back taxes, but to issue a tax credit (rather than a refund) for those
who paid at the higher rate - something that sounded suspiciously like
what the court had already turned down.
Well either he got some good legal advice or good political advice - or
both - because yesterday Romney announced he was filing a bill to do
exactly what the court said the Legislature could do - set the effective
date at Jan. 1, 2003.
"It is fundamentally unfair to tax people retroactively," Romney said
yesterday. "If we are to keep faith with the taxpayers of Massachusetts,
we need to correct the constitutional error that occurred here."
With spring tax revenue figures showing renewed growth (May's figures
were $122 million ahead of last year's figures for the month), the state
can indeed afford to return this money to the people who earned it.
That's just what the Legislature must do.
Return to top
The Boston Globe
Wednesday, June 15, 2005
House to take up tax compromise
Gives 80,000 who owe for '02 a break
By Scott S. Greenberger, Globe Staff
About 80,000 of the 120,000 investors who owe Massachusetts capital
gains taxes from 2002 after a recent Supreme Judicial Court ruling would
be spared under a proposal making its way through the Legislature.
The proposal, part of a broader tax measure the Joint Committee on
Revenue approved yesterday, exempts anyone whose state capital gains tax
bill for the first four months of 2002 would be $100 or less.
Under the proposal, about 40,000 other taxpayers who owe more than $100
for those four months in 2002 would still have to pay. The average tax
bill for those larger investors is $3,725. The proposal would waive
penalties and interest for all investors large and small.
The House is expected to take up the proposal today.
The effort is the latest attempt to minimize the fallout from the
Legislature's 2002 decision to raise capital gains taxes as of May 1,
2002. Last year, the SJC found the tax increase unconstitutional,
because tax rates must remain constant through a calendar year. Two
months ago, the high court gave the Legislature a choice: Either
designate January 2002 as the effective date for the increase and
collect about $150 million in unpaid taxes or move the date back to
January 2003 and refund as much as $275 million that has already been
paid.
Last week, Governor Mitt Romney urged the Legislature to support a
refund, but Democratic leaders on Beacon Hill argue that the state's
budget is too tight to give back the $275 million. They have decided to
make the tax hike effective January 2002, but to shield small investors.
"I agree this is not easy, but who's going to pay for the $275 million
you'd give back?" said Senator Cynthia S. Creem, the Newton Democrat who
cochairs the Revenue Committee. "You're going to cut services. Somebody
is going to have to pay for it, one way or another."
Creem said that people who paid $100 or less in capital gains taxes
after the effective date of the tax hike also would be eligible for a
refund. That provision, designed to make sure taxpayers are treated
equally no matter when in 2002 they sold their assets, would cost the
state about $1 million.
Romney said yesterday he supports sparing smaller investors and waiving
interest and penalties for everyone, but he insisted that no taxpayer
should owe money on a transaction completed three years ago.
"We as a government made a mistake," Romney said. "By virtue of our
mistake, we are now in a setting where certain people may have to go
back and retroactively be expected to pay taxes at a rate that did not
exist at the time they carried out a transaction. That's just not fair."
Romney would not say whether he would veto the bill, since it does
provide some relief to taxpayers and is part of a package that would
close $85 million in corporate tax loopholes.
Some critics say Romney, who is weighing a run for president, is
supporting the refund to score points with conservatives beyond the
state's borders. In recent months, he has drawn fire from some prominent
antitax groups for moving aggressively to close what he describes as
corporate tax loopholes, and backing the refund may help him shore up
his antitax credentials.
But Romney spokesman Eric Fehrnstrom said that Romney initially backed a
revenue-neutral solution to the capital gains controversy that would not
have cost taxpayers or the state, before finally concluding that the
court ruling precluded that option.
"It's too convenient to dismiss the governor's concerns by accusing him
of playing politics," Fehrnstrom said. "It's too facile. The fact is,
you can't really talk about this case without talking about the court
ruling and the unfairness of retroactive taxation."
The 2002 tax increase on capital gains was adopted during the state's
fiscal crisis, when Beacon Hill was desperate to raise more revenue.
Lawmakers raised the tax rate on long-term capital gains to 5.3 percent,
replacing six lower rates. Under the old system, the rates ranged from
zero to 5 percent, based on how long the investor had held on to the
asset. The state levied no tax on assets held longer than six years.
But in March 2003, about 100 investors filed a lawsuit challenging the
constitutionality of the midyear tax increase.
Revenue Commissioner Alan LeBovidge says his agency anticipated the high
court's ruling and has already begun the process of reviewing 2002
returns to determine who owes more and how much. LeBovidge said he is
confident his agency can track down the taxpayers, even those who have
left the state.
Return to top
CLT MEMO
To: House of Representatives
June 15, 2005
Re: Capital Gains Tax Fiasco
CLT supports Governor Romney’s solution to the 2002 Legislature’s
capital gains tax fiasco
This is not meant to criticize the 2005 Legislature, which we hope will
clearly see the mistake its predecessor made in 2002. But as fiscal
insanities go, this one was a doozy.
As part of the biggest tax increase in state history, in June 2002, the
Legislature not only froze the income tax rollback, but increased the
capital gains tax rate.
It was apparently obvious to everyone that the state couldn’t tax
wage-earners’ paychecks from January through April at one income tax
rate, and wage-earners’ paychecks from May through December at a higher
rate.
It was clear to CLT from the beginning that the state couldn’t legally
change the capital gains tax rate in the middle of the year, either.
Eventually the state Supreme Judicial Court made that clear to everyone
and wants the state to choose either Jan. 1, 2002, or Jan. 1, 2003 as
the beginning date of the higher tax, so that all taxpayers are charged
the same rate on their capital gains for 2002.
If the state chooses Jan. 1, 2002: it can keep the ill-gotten revenues
from the illegal 2002 tax hike, as it applied from May through December,
then would have to retroactively increase the tax on people who realized
their capital gains from January through April.
An example: Joseph Svelnis sold his bakery building in April 2002 as he
prepared for retirement. He had every reason to think, as he made his
decision as to when to sell, that his capital gains tax rate, under the
law in April 2002, would be 0% since he had held his bakery longer than
six years. So he sold and got on with his retirement.
In June the Legislature changed the capital gains tax rate to 5.3%. It
is fair to have a discussion as to why capital gains would be taxed at
zero when wage income is taxed at 5.3%. What is not fair is, three years
later after the case has made its way through the court, to go back and
tax Mr. Svelnis retroactively. And incredibly, there would be penalties
attached for the tax he hadn’t paid that hadn’t existed at the time he
hadn’t paid it!
Not only is this unfair to Mr. Svelnis, it’s an insane message to send
to investors anywhere in the world, who would think that the
Commonwealth of Massachusetts has taken total leave of its senses. Who
would want to invest here, own business property here, if the capital
gains tax rate changes impulsively after entrepreneurial decisions are
made?
CLT is concerned not only for Mr. Svelnis, the baker – and the butchers
and candlestick makers across the Commonwealth who could also be hurt –
but for the state economy and our image as a place to do business. We
applaud Governor Romney’s decision to file legislation to change the
effective date of the capital gains tax rate to January 1, 2003.
Seeing the new revenue numbers, it is clear that Massachusetts can
afford to return the taxes paid by May-December capital gains taxpayers
in 2002, and then roll back the state income tax rate to the promised 5
percent. We are grateful to Gov. Romney’s support for both, and hope
this Legislature will do the right thing.
Return to top
The Boston Herald
Thursday, June 16, 2005
A Boston Herald editorial
Some tax 'compromise'
The latest tax "compromise" crafted by the Massachusetts Legislature is
nothing if not creative. But the issue will be what it has always been -
is it constitutional? And the answer is oh-so-likely to be no.
Once again at issue is who gets to pay an increase in the capital gains
tax the Legislature passed mid-year in 2002.
Twice the state's Supreme Judicial Court has told lawmakers they can't
create two classes of taxpayers by making them pay at different rates in
the same year, depending on when they sold a taxable asset. The court
turned down the most recent legislative attempt at "compromise" just
last April, saying legislators could choose to make the new rates
effective as of Jan. 1, 2003, and refund some $275 million to taxpayers,
or Jan. 1, 2002, and attempt to collect another $150 million, but it
couldn't change the rules in the middle of the game.
So days after Gov. Mitt Romney finally concedes that the state should
simply give the $275 million back to those who paid it for 2002, what
does the Joint Committee on Revenue do? Well, they construct yet another
constitutional abomination. The newest bill would once again split this
baby by refunding taxes for 2002 to those who paid $100 or less (that's
about 80,000 taxpayers), while collecting at the higher rate from about
40,000 taxpayers who owe more than $100. So this time they divide
taxpayers not by a date, but by what they owe. If anything that may be
even more offensive, dividing taxpayers by income - providing a kind of
back-door graduated tax.
There is nothing the Democrat-controlled Legislature likes less than to
give money back to the people who earned it. Legislators like Sen.
Cynthia Creem (D-Newton), co-chair of the Revenue Committee, told the
Boston Globe, "I agree this is not easy, but who's going to pay for the
$275 million you'd give back? You're going to cut services."
Of course, that ignores the fact the state revenues as of May are
already up more than $1.077 billion over last year's figures. But for
lawmakers like Creem that's never enough.
Romney ought to make one thing abundantly clear - that this tax hike is
sure to get a gubernatorial veto.
Return to top
CLT MEMO
To: Massachusetts Senate
June 16, 2005
Re: Legislature’s capital gains tax fiasco
This is not meant to attack the 2005 Senate, which we hope will clearly
see the mistake its predecessor made in 2002, and the House is making
now. But as fiscal insanities go, this one is a doozy.
As part of the biggest tax increase in state history, in June 2002, the
Legislature not only froze the income tax rollback, but increased the
capital gains tax rate.
It was apparently obvious to everyone that the state couldn’t tax
wage-earners’ paychecks from January through April one income tax rate,
and wage-earners’ paychecks from May through December at a higher rate.
It was clear to CLT from the beginning that the state couldn’t legally
change the capital gains tax rate in the middle of the year, either.
Eventually the SJC made that clear to everyone and wants the state to
choose either Jan.1 , 2002,or Jan. 1, 2003 as the beginning date of the
higher tax, so that all taxpayers are charged the same rate on their
capital gains for 2002.
If the state chooses Jan. 1, 2002: it can keep the ill-gotten revenues
from the illegal 2002 tax hike, as it applied from May through December,
then would have to retroactively increase the tax on people who realized
their capital gains from January through April.
An example. Joseph Svelnis sold his bakery building in April 2002 as he
prepared for retirement. He had every reason to think, as he made his
decision as to when to sell, that his capital gains tax rate, under the
law in April 2002, would be 0% since he had held his bakery longer than
six years. So he sold and got on with his retirement.
In June the Legislature changed the capital gains tax rate to 5.3%. It
is fair to have a discussion as to why capital gains would be taxed at
zero when wage income is taxed at 5.3%. What is not fair is, three years
later after the case has made its way through the court, to go back and
tax Mr. Svelnis retroactively. And incredibly, there would be penalties
attached for the tax he hadn’t paid that hadn’t existed!
Not only is this unfair to Mr. Svelnis, it’s an insane message to send
to investors anywhere in the world, who would think that the
Commonwealth of Massachusetts had taken total leave of its senses. Who
would want to invest here, own business property here, if the capital
gains tax rate changes impulsively after entrepreneurial decisions are
made.
CLT is concerned not only for Mr. Svelnis, the baker – and the butchers
and candlestick makers across the Commonwealth who could also be hurt –
but for the state economy and our image as a place to do business. We
applaud Governor Romney’s decision to file legislation to change the
effective date of the capital gains tax rate to January 1, 2003.
The House compromise is still unconstitutional as well as incredibly
unfair. A very wealthy person who just happened to have a small capital
gain in 2002 would be excused from the retroactive tax, while the person
who sold his property in preparation for retirement, getting his only
capital gain ever, would be taxed retroactively. This is a pathetic
attempt to avoid doing the right thing, which Governor Romney has
proposed.
Seeing the new revenue numbers, it is clear that Massachusetts can
afford to return the taxes paid by May-December capital gains taxpayers
in 2002, and then rollback the state income tax rate to the promised 5
percent. We hope the Senate matches his realistic and fair approach to
dealing with this 2002 fiasco.
Return to top
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