and the
Citizens Economic Research Foundation

Barbara's Column
May 2004 #2

Romney's on a roll with proposal for taxpayer relief
by Barbara Anderson

The Salem News
Thursday, May 13, 2004

Summer is on its way. Why shouldn't the income tax rollback, that was frozen by the Legislature at 5.3 percent, be thawing now?

Let's begin the discussion with a little history:

When opponents of the rollback argue that the rate should return to its previous 5.95 percent, one could get the impression that this is some kind of traditional level of taxation. In fact, the income tax rate was 5 percent until 1989, when it was raised "temporarily" to deal with a state fiscal crisis.

After almost a decade, taxpayer activists began a petition drive to "Keep the Promise" that the rate hike would be temporary. Sensing voter support for this major tax cut, the Legislature passed a substitute package with a long-overdue increase in the personal exemption.

Pause here to note that as part of the Reagan tax cuts, the federal personal exemption had been indexed for inflation for years. So finally Massachusetts gets around to adjusting its own exemption in 1998 and waits for applause?

While embracing this legislative tax cut, taxpayer activists continued with the petition drive and placed the income tax rate rollback on the 2000 state ballot, where it passed with 59 percent of the vote. Now "The People's Rollback" law, it reduced the rate to 5.6 percent in 2001, 5.3 percent in 2002, and finally back to the truly traditional 5 percent rate in 2003.

But after years of spending the surplus revenues, and doubling the state budget, Massachusetts was again in fiscal crisis. As part of its next tax package, lawmakers decreased the personal exemption again, and "froze" the rate at 5.3 percent, creating a formula for its defrosting that the Romney administration estimates would take until 2014 "under perfect or better fiscal conditions."

By then, of course, Massachusetts will have spent itself into another fiscal crisis, another Ice Age will have arrived, and the 5 percent rate will be buried somewhere in the frozen tundra.

So in late April of this year, with news of a recovering economy and what Gov. Romney called "extraordinary growth in revenues," he announced his support for rolling the rate back to 5 percent for tax year 2005.

From the response of the big-government establishment, you'd think he was thawing an eons-chilled wooly mammoth that would shake itself, rise to its stumpy feet, and stomp state government into the ground.

Tax collections so far this year are $517 million above projections. Income tax revenues alone are up 42 percent over April 2003. The rollback would be worth approximately $225 million. The governor also wants to spend more on various things like homeland security and Medicaid. What is the problem here?

Some opponents argue that the above-mentioned formula requires a slow increase in the personal exemption before the tax rate drops. I think a voter-mandated law should take precedence, but what the heck, let's do them both - and finally index the personal exemption to inflation while we're at it.

Other opponents want to keep all the "extraordinary growth in revenues" in order to restore or create new programs, institute a constitutional rainy-day fund, and do whatever else works for their own political goals. Yet they accuse the governor of political opportunism, accusing him of supporting a tax cut to pander to right-wing national conservatives whom he might someday need to bolster his alleged national ambitions. The rollback gets rolled in with Romney's opposition to gay marriage and support for the death penalty.

Let's take a deep breath here. First of all, this is not a "tax cut," for we were assured in 2002 that the "freeze" was not, heaven forbid, a tax hike. Second, the governor is merely asserting the will of a solid majority of Massachusetts voters, who are rarely accused of right-wing conservatism, and who are not running for national office. In 2002, they wanted to make the state government, just once in its life, keep a promise that a tax increase would be "temporary."

Romney is a Republican. It's hardly out of character for a Republican to support lower taxes. Nor does it seem odd to me that a person with his religious background would oppose gay marriage. And he promised to try for a death penalty when he was running for the job, so he's keeping yet another promise. All of these things are within the governor's context, and if this works to his future political advantage, I'd consider it the country's gain.

I doubt that he is going to win the gay marriage debate, or the death penalty either. I'd be astonished if the Legislature unfreezes the tax rollback this year, though there's a chance it might increase the personal exemption as a substitute again. Meanwhile, Gov. Romney is keeping his commitments, and is giving fair warning that his next budget in January will be based on a 5 percent income tax rate. He is also giving a "respect for the voters" issue to the candidates he is supporting this fall. On the tax issue, Mitt is on a roll.

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.