and the
Citizens Economic Research Foundation

Barbara's Column
November #5

Morally wrong, ethically unsound
by Barbara Anderson

The Salem News
Thursday, November 17, 2005

Just returned from a legislative hearing on income tax issues, where I was reminded of a favorite cartoon.

"Porterfield" is being lobbied by someone arguing that a particular proposal is "morally correct and ethically sound."

Porterfield replies: "Are you trying to make me say, 'So what?'"

That's how I always feel when saying to legislative committees that something is "the right thing to do," as several citizens did today in reference to the retroactive capital gains tax. Were they trying to make legislators say, "So what?"

In May of 2002, the Legislature froze the income tax rollback that the voters passed in November 2000. In the same bill, it hiked the capital gains tax for all future transactions. The later action was clearly unconstitutional, since a tax rate must be the same for all taxpayers throughout any given tax year.

So taxpayers went to court and won. Now the state had to return the taxes paid by those who had capital gains from May to December, or send a bill for more taxes to those who had capital gains from January to April. They chose the latter.

A couple from Revere testified that in early 2002 they sold some housing, paid all the taxes required at the time, and put the rest into college funds for their two children. His mother is using her share to pay for her nursing home.

If they have to pay the retroactive tax, they will have to pay penalties (and the capital gains tax again!) on the money they must withdraw early in order to pay the state. There will no money left for remaining college costs, and Mom will become a Medicaid patient instead of a self-payer.

They also noted an uncle who has since died, and his gains distributed throughout his estate. How does the state collect that? What about people who have moved?

A woman put her gains from the sale of a veterinary business into a college fund for her four children. Another woman had been chosen to represent 321 people in her district who would be required to come up with $691,000 in just a month to pay the retroactive tax.

A man testified that he had "once-in-a-lifetime" capital gain with which he'd bought a house, donated to charities, and set aside money for college for his three children. He said the retroactive tax bill would be more than his annual salary.

Another man said that he and his family, lifelong taxpayers in Massachusetts, sold a property that they had owned for over 25 years. He paid the taxes on his share and invested the rest. Now he is told he must come up with an additional $8,000 within 30 days and he asks, "Do I sell the new investment? Take out a loan? Get another job?"

And noting Massachusetts' population loss, he predicts that "sooner or later, this state will wake up and wonder what happened" to its productive taxpayers, as they escape to places where they can keep more of their money.

A retired teacher invested in a rental property in the city and after he sold it, paid medical costs and invested the rest of his gains.

The Massachusetts Teachers Association, by the way, testified in favor of the retroactive taxes. Well, he's not paying dues anymore, so who cares about him?

An attorney told the Committee on Revenue that the court action on this issue is not over, and in the end, when the courts rule against retroactive taxation, the commonwealth will have to repay not only the May-to-December taxpayers, but the January-to-April taxpayers too this after forcing the latter to sell investments and pay penalties for cashing in CDs and IRAs.

To their credit, the few committee members who were present listened attentively. The chairwoman, Sen, Cynthia Creem, D-Newton, suggested to the Revere couple that they contact their own state senator, who happens to be Senate President Robert Travaglini. This was the first time I'd ever heard a committee chairperson recommend that someone testifying before his/her committee go over his/her head to the boss. It does indicate who will be making the decision on the retroactive capital gains tax the governor, the Senate president, and House Speaker Sal DiMasi.

We know where Gov. Romney stands, since he filed the bill to move the effective date of the 2002 capital gains tax hike to Jan. 1, 2003. DiMasi's House has rejected attempts by Republican legislators to move the date forward, but 13 Democrats voted with them last week, so slow progress is being made. And Senate President Travaglini must respond, one way or another, to the Revere couple who said, in a letter to legislators, "How you sleep at night is beyond me, but I can't be worrying about your sleep when I'm getting very little of my own," worrying about things like how to pay for repairs to her 8-year-old Honda and some required treatment for her dog.

Many ordinary people are being assaulted by the Legislature and forced to make up for its 2002 mistake. We might say this is morally wrong and ethically unsound, not to mention economically foolish, but that would apparently make most legislators say, "So what?"

Barbara Anderson is executive director of Citizens for Limited Taxation. Her syndicated columns appear weekly in the Salem News, Newburyport Times, Gloucester Times, (Lawrence) Eagle-Tribune, and Lowell Sun; bi-weekly in the Tinytown Gazette; and occasionally in the Providence Journal and other newspapers.