and the
Citizens Economic Research Foundation

Barbara's Column
April 2004 #3

Nice place to visit, but you might not want to invest here
by Barbara Anderson

The Salem News
Friday, April 16, 2004

Memo To:  Out-of-State Businesses
From:  The Commonwealth of Massachusetts
Re:  Locating Here and Providing Jobs

Uncle Mitt wants YOU. Massachusetts unemployment is still high and we need your jobs. So try to ignore our reputation and just come on down, over, or up.

Yes, for years we were known as Taxachusetts. But not anymore: Why, according to the Washington-based Tax Foundation, our total tax burden is only fourth in the nation! Tax Freedom Day - the day Massachusetts taxpayers start working for themselves, not the government - is April 18 this year, only a week later than the national average. You don't mind working an extra week for the government, do you?

Now if you don't count federal taxes, which of course you would be paying anywhere, our tax burden relative to our personal income is ranked only 36th in the country. Some people think this means we could afford to pay higher state taxes, but you might be asking yourself: Don't I have to add the federal taxes back in?

Yes, you do. And if the tax burden computation is done per capita - by how much is paid for every man, woman and child in the state - the Massachusetts tax burden is third highest in the country, 19.7 percent above the national average. 

But there are worse places to locate. Connecticut and New Jersey have higher taxes than ours. So don't go there!

Also, taxation in our commonwealth is challenging and fun. Take, for instance, the capital gains tax, which we know is important to investors and businesses that depend upon investment.

For a long time Massachusetts had a capital gains tax rate that was higher than the regular income tax rate! People had little incentive to risk their money.

But in 1995 the business community got lucky. Governor Bill Weld wanted the capital gains tax cut, and the Legislature wanted a pay raise. So when the pay raise was on the governor's desk, the legislative leadership quietly passed a capital gains tax phase-out by telling its liberal members that it was a "tax cut for low-income people."

Ha ha. Some of them didn't find out for days what they had voted for! But by then it was too late - the governor had signed both the pay hike and the capital gains tax phase-out.

Some good-government groups warned the business community that it wouldn't think it was so funny when the legislators found another sneaky way to raise the capital gains tax again. But as it turned out, the next time the commonwealth had another one of its "we spent too much in good times" fiscal crises, the Legislature openly raised the capital gains tax during the state budget debate.

Investors who were in the middle of a transaction that would create capital gains had little warning to help them make a decision based on after-tax reward for risk. They did the best they could but - here's the fun part - our Supreme Judicial Court just ruled that a tax rate can't change in the middle of the year. So right now our state government is trying to decide if it will tax investors retroactively to the beginning of that 2002 tax year (which would require an estimated 110,000 to 120,000 investors to pay an additional $159 million in taxes, according to the state Department of Revenue) or, as Romney is recommending, push it forward to January 2003 (which would result in an estimated 145,000 people getting refunds totalling between $225 million and $275 million).

Bet you can't wait to move your business to a state that would actually consider taxing you retroactively, after your capital gains decisions have been made and the transactions done.

By the way, we have the highest unemployment insurance costs in the country, but don't let that keep you away; if you create enough jobs, we won't have unemployment, so maybe someday the rates will go down. No guarantees, of course, but your lobbyists will do their best.

And be prepared for some of our quaint traditions that you probably don't have where you are now: The mandatory use of highly paid policemen for special construction details; the annual auto excise tax on all your vehicles.

C'mon, give us a break. We have some good features. 

It often comes as a pleasant surprise to business owners who move here that we don't have a graduated income tax, so you and your employees won't be punished with a higher rate as you make more money. And we have a voter-created property tax limit that somewhat controls property taxes - though if you plan to come here, check first to see which communities use a split tax rate, requiring businesses pay up to 200 percent of the equalized property tax rate so that homeowners (a.k.a. voters) can pay less. 

Avoid Boston, for that reason and others. For example, when the Democrats have a convention, they will tell you and your employees to stay home and out of the way.

Remember, our motto used to be "Make it in Massachusetts." But that was back during the 1980s when the high technology industry was really hot. Then we got off onto a tourism-industry-only tangent, and our motto became, "We'd love to show you around," followed by "Take a real vacation." 

After Mitt Romney became governor, it was changed to "Massachusetts: Make it Yours," which is exactly what we want you to do.

Barbara Anderson is executive director of Citizens for Limited Taxation. Her syndicated columns appear weekly in the Salem News and Lowell Sun; bi-weekly in the Tinytown Gazette; and occasionally in the Providence Journal and other newspapers.