CITIZENS   FOR  LIMITED  TAXATION
and the
Citizens Economic Research Foundation

CLT UPDATE
Friday, August 26, 2005

As state revenue pours in, it's "wait-and-see" all over again


WASHINGTON -- The Supreme Court, given an opportunity to revisit a heavily criticized ruling, declined yesterday to reconsider its decision giving local governments more power to seize people's homes for economic development.

The court's 5-to-4 ruling in the eminent domain case in June was so contentious that some of the critics launched a campaign to seize Justice David H. Souter's farmhouse in New Hampshire to build a luxury hotel.

Others singled out Justice Stephen G. Breyer's vacation home in New Hampshire for use as a park.

The Associated Press
Tuesday, August 23, 2005
High court won't reconsider its eminent domain ruling
Justices' verdict in Conn. case drew heavy criticism


Forty years ago, the town of Norwich took Rep. Steven Mikutel's family farm from his grandfather for a school that was never built.

Mikutel was one of dozens of people who spoke at a [Hartford, Conn.] hearing yesterday about proposed changes to Connecticut's eminent domain laws in the wake of a recent U.S. Supreme Court decision that said government can seize homes for private development projects.

"Too often they grab more land, more property, than they actually need," Mikutel said. Legislatures across the country are reviewing eminent domain laws after the court ruled New London can take homes for a private development project to increase its tax base....

One bill would pay homeowners one-and-a-half times the fair market value.

The Associated Press
Friday, August 26, 2006
Eminent domain ruling spurs closer look at laws


WASHINGTON -- Taxpayers in New England and other so-called "blue" states would pay higher IRS bills under plans being considered by a presidential panel.

Average taxpayers in Massachusetts, Connecticut, and Rhode Island would owe more than $2,000 extra every year under proposals to get rid of a federal exemption that allows them to claim deductions on their state and local tax payments, according to one analysis of the idea, which conservative economists have promoted for decades....

Eliminating the deduction, they say, would be fairer and would lead to more political pressure on state governments to keep taxes low.

"One could argue that the low-tax states are in effect subsidizing high-tax states," said Bruce Bartlett, a former Treasury Department official in the Reagan administration who backs a repeal of the deduction.

The Boston Globe
Sunday, August 21, 2005
Tax panel eyes ending deduction key to N.E.
Bills in 'blue' states would jump $2k


Four months after a high court ruling prompted the state's revenue commissioner to say the state is "obligated" to bill residents for owed capital gains, the state has yet to issue those bills, opting to wait for legislative action.

Timothy Connolly, spokesman for the Department of Revenue (DOR), said revenue officials are waiting indefinitely for the Legislature to act on proposals that would change what residents owe back taxes in the wake of an April ruling by the Supreme Judicial Court. According to DOR, the state would collect between $150 million and $200 million from nearly 120,000 taxpayers under the ruling.

"We're waiting for Legislature," Connolly said. "We're planning to react to whatever comes over. It would be a bad thing if we did one thing and the Legislature takes action to make you do the opposite. That would create a lot of problems for us."

Gov. Mitt Romney has proposed legislation that would set the effective date at Jan. 1, 2003, leading the state to issue between $225 million and $275 million in refunds to roughly 145,000 taxpayers. The governor said his proposal is to avoid a retroactive tax hike on constituents based on a court ruling.

State House News Service
Wednesday, August 24, 2005
DOR holding back retroactive capital-gain bills,
waiting for statute


State finances improved twice as much as policy makers anticipated last year, but lawmakers across the country are proceeding cautiously again this year, according to a new report from a national lawmakers group.

The results of a nation-wide survey released last week by the National Conference of State Legislatures (NCSL) at its summer conference found most states took in more revenue than those on Wall Street had predicted. They also increased their spending to begin restoring programs and services cut in previous budget years....

In Massachusetts, revenue officials saw significant gains in personal tax collections, including income tax and capital gains taxes. Massachusetts took in $400 million more in tax revenue than officials predicted, according to Department of Revenue Commissioner Alan LeBovidge in an interview.

"Massachusetts clearly exceeded its projections," he said. "We're kind of mirroring what the better performing states did, but we did it without any tax increases. We just did it the old fashioned way."

State House News Service
Thursday, August 25, 2005
States experience healthy revenue growth
but budget pressures remain


House leaders from both parties on Thursday cautioned against conditionally reducing the state's income tax rate and said relief for taxpayers may be more difficult to achieve.

Lawmakers in the House are a considering proposal approved unanimously by the Senate last month that would trigger an income tax cut when local aid spending rises to a certain level. And while they agree that taxpayers deserve a break, House leaders say the Senate proposal may not be the most equitable way to go about it.

Speaking to reporters after addressing the Malden Chamber of Commerce, House Speaker Salvatore DiMasi said the Senate proposal doesn't make any sense to him, since the tax cut would be tied to spending amounts. Under the legislation, the 5.3 percent income tax rate would begin to incrementally roll back to 5 percent once local aid categories equaled what they were in fiscal 2002.

"To me, it should be more about revenue," DiMasi said. "What happens if you artificially increase the local aid because that's your priority and cut all the social programs? Does that make any sense? No." ...

Republican Senator Richard Tisei from Wakefield said today that the state has been able to restore a lot of the social and human services that were cut during the recession. But cities and towns are still suffering from the reduction in state aid during that time....

Republican Gov. Mitt Romney has unsuccessfully lobbied for more than a year to reduce the income tax rate to 5 percent, arguing that taxpayers ought to reap the benefits of the economic recovery. Romney also argues the state needs to uphold the will of the voters who approved a tax cut on the 2000 ballot.

Most Democratic lawmakers are wary of reducing tax revenue when they say social services, health care, and education programs are in need of more state money.

House Minority Leader Bradley Jones (R-North Reading) also cautioned against the Senate proposal today, noting that not all cities and towns benefit from the local aid categories in the state budget - Chapter 70 education aid, Lottery aid, and Additional Assistance. Jones said larger cities like Boston and Cambridge receive a large share of Additional Assistance, while some communities don't receive any.

State House News Service
Thursday, August 25, 2005
House leader says it's too soon to cut taxes


Chip Ford's CLT Commentary

CLT recently launched a new section on its website, the "Defense of Private Property Project." There you'll find relevant news on the fallout from the U.S. Supreme Court's landmark ruling on eminent domain and the taking of private property for land-developers' advantage. From time to time we'll add important information to it (as is already posted), especially news and reports on efforts here in Massachusetts to protect property owners from losing their homes and property to "private/public partnerships." We'll let you know here when news breaks, and usually have a comment about it -- especially policies and developments affecting Massachusetts property owners.


Earlier this week I quoted Ecclesiastes 1:9 ("... there is nothing new under the sun") and others in reaction to yet another "Hamill Commission" and how we citizens of Massachusetts must go round-and-round every few years revisiting bad old experiences, our alleged leaders never learning from the past and past mistakes. Well here we go again, with tax revenues pouring in -- just as they did during the Roaring '90s -- and still we can't have the income tax rate finally rolled back after a 16-year broken promise by the Legislature.

In the CLT Update of May 4, 1998 -- with billions of surplus tax dollars pouring in and being spent hand-over-fist -- "unmet needs" were still claimed to be unmet. Despite the state budget increasing by some billion taxpayer-dollars a year, "the most vulnerable among us" were still vulnerable, their number growing.

The Boston Globe that day reported ("The state surplus: Social aims take back seat, " May 4, 1998):

But as the debate over the stateís finances begins today on Beacon Hill, noticeably absent will be calls to use the huge windfall - a projected $800 million surplus this year, and an expected $1.6 billion in new tax money next year - to help solve the stateís most pressing social problems in any major way....

Yet, social welfare specialists and advocates contend that using some of the new tax revenues could help eradicate hunger here, teach illiterate adults on waiting lists to read, insure half of the 766,000 Bay Staters without health benefits, or put all of the stateís 3- and 4-year-olds in stimulating learning environments.

On this same day, the Boston Herald editorial ("State budget: Itís big," May 4, 1998) noted:

The state budget is rather like the old saw about blind men describing an elephantóand with every passing year and every additional billion in spending, the elephant analogy becomes more relevant.

The budget ó at $19.463 billion ó is not simply enormous, it is many different things to many different people. Most of those "things" ó funds for education (up $253 million this year), increased aid to cities and towns ($34 million in new lottery aid), $21 million to begin the process putting the MBTA on a pay-as-you-go basis ó are difficult to argue with one by one.

But as long as there are budgets to be drawn up and taxes flowing in to pay for all those "things," the "things" will grow and multiply. And wants will soon become needs.

Itís not that this is an irresponsible budget. It isnít. It assumes $500 million in tax cuts, which is a very good start. The chief problem is that its priorities are askew. It puts individual taxpayersótheir wants and needsónear the end of the list, not the beginning.

State budgeters have planned for rainy days, theyíve met every conceivable need. Now itís time they gave taxpayers their due. Itís time legislators kept their promise of too many years ago to roll back that "temporary" hike in the income tax to 5 percent.

As the House begins debate on the budget today, lawmakers should remember their promises of years gone by.

That "enormous" budget back then was $19.5 billion. Last fiscal year the on-budget spending was $22.4 billion (See: "Truth in budgeting: The hidden code to breaking state budget numbers"). This fiscal year on-budget spending is $23.8 billion and counting (there will be the usual "supplemental budgets" through the coming fiscal year that'll increase the final spending figure).

Still "unmet needs" and "the most vulnerable among us" remain, still among us. To listen to the Beacon Hill tax-and-spenders, you'd think things have never been so dismal, more grim.

With hundreds of millions of our tax dollars again pouring into state coffers much faster than anticipated, the economy might be improving they tell us. Maybe we can finally roll back the tax rate, someday, they say, regurgitating the Legislature's Roaring '90s mantra. Let's wait and watch, see how things go, they promise, again dangling false hope -- until the next cyclical downturn and routine over-spending "crisis" they again create in the meantime, when it will of course become impossible right now again.

They still can't find it within themselves or their abilities to finally -- sixteen years later, almost a generation -- roll back that last point-three percent of the "temporary" 1989 income tax hike.

And they never will find the will within.

Because for too many State House legislators, More Is Never Enough. Despite the voters' clear mandate in 2000 -- five years ago, half a decade -- that the income tax rate finally be returned to 5 percent, the Legislature continues to insist . . . "it's MINE now!"

Chip Ford


Commentary by Barbara Anderson

Loss of the federal tax deduction for state taxes paid? Hereís an interesting discussion for us.

On the one hand, of course we federal taxpayers are happy to deduct our state income and property taxes from our federal taxes.

On the other hand, we do get tired of hearing this deduction used as an offset when our state or town raises our taxes. "Itís deductible" they say, as if itís a dollar for dollar exchange. I always respond, sarcastically of course, "Well then letís triple our taxes and get a really nice deduction!"

In the end, we pay more and more.

Remember Jack Kempís commission on tax simplification, and the national debate to abolish the IRS -- that all got lost somewhere in political-land? A simple, fair federal system would not give tax breaks to people who live in high tax states, thereby taking more from taxpayers in other states who keep their taxes under control.

Ah, the usual dilemma. If only all those Massachusetts citizens who vote against our tax cuts and vote for higher taxes and overrides could lose their federal deduction.

But, what about us, the minority, who have tried our darndest to keep taxes here under control, and yet are stuck in this blue state?

One thing for sure, if the federal change happens, we will use it to argue for our income tax rollback and further property tax limitation.

Barbara Anderson


The Boston Globe
Sunday, August 21, 2005

Tax panel eyes ending deduction key to N.E.
Bills in 'blue' states would jump $2k
By Alan Wirzbicki, Globe Correspondent


WASHINGTON -- Taxpayers in New England and other so-called "blue" states would pay higher IRS bills under plans being considered by a presidential panel.

Average taxpayers in Massachusetts, Connecticut, and Rhode Island would owe more than $2,000 extra every year under proposals to get rid of a federal exemption that allows them to claim deductions on their state and local tax payments, according to one analysis of the idea, which conservative economists have promoted for decades.

In January, President Bush appointed a nine-member commission headed by former senator Connie Mack of Florida to seek ways to simplify what critics say is an overly complex and cumbersome federal tax code. The panel is expected to issue recommendations in September.

But some conservatives are hoping that instead of simply tidying up the small print in the thousands of pages of federal tax law, the commission will also call for what would be a fundamental shift in the way the federal government treats the different tax philosophies in the federal system.

Currently, conservatives say, citizens of a high-tax state like Connecticut or Maine don't really pay the true cost of their local taxes. Taxpayers in high-tax areas can get a reduction on federal taxes if they can show they paid enough in state income tax or property tax, a policy that has existed since the 19th century and has the effect of spreading the tax burden across the country. But conservative economists say that deduction makes it easier for states to raise taxes, since they know taxpayers will be able to pass on some of the cost to Washington.

Eliminating the deduction, they say, would be fairer and would lead to more political pressure on state governments to keep taxes low.

"One could argue that the low-tax states are in effect subsidizing high-tax states," said Bruce Bartlett, a former Treasury Department official in the Reagan administration who backs a repeal of the deduction.

Liberals counter that the proposal amounts to a brazen attempt to use the clout of the federal government to tell states how they should tax their citizens.

"The ultimate goal is to make it more expensive for states to have a higher tax rate, and to use the federal government to impose a conservative agenda on states," said John Irons, the director of tax and budget policy at the Center for American Progress, a liberal think tank in Washington.

Congress would need to approve any change to the exemption, something advocates acknowledge is unlikely. A proposal by President Reagan to repeal the write-off in 1985 failed after encountering strong opposition from Northeastern lawmakers led by former senator Alfonse M. D'Amato, a Republican from New York. Northeastern states tend to have the highest taxes and would be most affected by the change.

According to an analysis published in April in the journal Tax Notes, the twelve states the proposal would affect the most would be the "blue" states that backed Senator John F. Kerry of Massachusetts in the 2004 presidential election. That list includes four New England states: Massachusetts, Connecticut, Rhode Island, and Maine.

In all, according to the study, scrapping the exemption would cost taxpayers in "blue" states $204.2 billion compared with $104.5 billion for taxpayers in "red" states, which on average have lower local taxes.

"The repeal of this deduction would significantly shift the federal tax burden into New England," said Representative Martin T. Meehan, Democrat of Massachusetts.

Still, Meehan said he expected the commission to recommend scrapping the exemption. The commission's chairman has pointedly refused to rule it out, even while promising that many other exemptions in the tax code would remain sacrosanct.

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State House News Service
Wednesday, August 24, 2005

DOR holding back retroactive capital-gain bills,
waiting for statute
By Amy Lambiaso


Four months after a high court ruling prompted the state's revenue commissioner to say the state is "obligated" to bill residents for owed capital gains, the state has yet to issue those bills, opting to wait for legislative action.

Timothy Connolly, spokesman for the Department of Revenue (DOR), said revenue officials are waiting indefinitely for the Legislature to act on proposals that would change what residents owe back taxes in the wake of an April ruling by the Supreme Judicial Court. According to DOR, the state would collect between $150 million and $200 million from nearly 120,000 taxpayers under the ruling.

"We're waiting for Legislature," Connolly said. "We're planning to react to whatever comes over. It would be a bad thing if we did one thing and the Legislature takes action to make you do the opposite. That would create a lot of problems for us."

The department will include information about the court ruling in its draft Technical Information Release being issued this Friday. The release, used to update tax practitioners on filing procedures, will describe the pending legislation, anticipated action by the DOR, and the likely impact of such action, officials said.

Lawmakers in the House and Senate have approved legislation that would exempt roughly two-thirds of residents owing capital gains taxes under the SJC ruling by raising the amount for which the revenue commissioner can waive old or overdue taxes from $50 to $100. The legislative proposal would also exempt taxpayers from paying penalties or interest on the taxes owed.

But the proposal dealing with the court ruling is included within a larger legislative proposal that raises more than $100 million in revenue by closing so-called corporate tax loopholes. The Senate has also included proposal to roll back the income tax rate to 5 percent when local aid spending reaches fiscal 2002 levels.

Those differences could force lawmakers to hash out the details in a conference committee, consisting of six appointed legislators, some suggest. It is unclear when lawmakers will take up the issue when they return from the summer recess.

Rep. James Marzilli (D- Arlington) said the DOR could strike some "panic" among taxpayers if it sent out bills too early.

"I don't think that there's a huge loss in them waiting to send out the notices as long as they get the tax professionals on board to be prepared for what's coming," Marzilli said. "I believe that the Department of Revenue is making its best faith effort to resolve this."

The court ruled in April that the effective date for changing the tax rate on capital gains is Jan. 1, 2002, after ruling separately a year earlier that the law changing the effective date midyear 2002 was unconstitutional. The most recent ruling meant taxpayers who sold their assets between Jan. 1, 2002 and May 1, 2002 owed capital gains taxes to the state.

Revenue Commissioner Alan LeBovidge was prompted by the SJC ruling in April to say the state was "obligated" to issue bills to residents owing back taxes, and said he intended to mail the bills shortly. But Connolly said this week there's no specific "drop dead" date beyond on which DOR plans to stop waiting for the Legislature, and send out the bills.

Gov. Mitt Romney has proposed legislation that would set the effective date at Jan. 1, 2003, leading the state to issue between $225 million and $275 million in refunds to roughly 145,000 taxpayers. The governor said his proposal is to avoid a retroactive tax hike on constituents based on a court ruling.

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State House News Service
Thursday, August 25, 2005

States experience healthy revenue growth
but budget pressures remain
By Cyndi Roy


State finances improved twice as much as policy makers anticipated last year, but lawmakers across the country are proceeding cautiously again this year, according to a new report from a national lawmakers group.

The results of a nation-wide survey released last week by the National Conference of State Legislatures (NCSL) at its summer conference found most states took in more revenue than those on Wall Street had predicted. They also increased their spending to begin restoring programs and services cut in previous budget years.

"The revenue situation for states is improving and is the best revenue situation states have found themselves in probably four years," said Arturo Perez, the report's author and fiscal analyst for the group.

At the same time, state lawmakers are still grappling with rising health care costs, and spending needs are expected to outpace modest revenue growth in coming years, Perez said in an interview.

"The trend for revenue performance in fiscal year 2006 is as strong it was in fiscal 2005," he said. "It's much improved. But to say states are all going to have this huge surplus would not be true."

According to the report, the national turnaround began late in fiscal 2004, with state year-end balances large enough to help boost fiscal 2005 budgets. Additionally, lawmakers learned that collections were outpacing projections.

Of the 46 states that reported to NCSL, revenues in fiscal 2005 were 6.8 percent above fiscal 2004 levels. Most of that growth is attributable to improved revenue performance.

In Massachusetts, revenue officials saw significant gains in personal tax collections, including income tax and capital gains taxes. Massachusetts took in $400 million more in tax revenue than officials predicted, according to Department of Revenue Commissioner Alan LeBovidge in an interview.

"Massachusetts clearly exceeded its projections," he said. "We're kind of mirroring what the better performing states did, but we did it without any tax increases. We just did it the old fashioned way."

Many states did raise taxes, though the national appetite for tax increases in 2005 was down from the previous year, according to the report. Of the 42 states reporting tax information, three states-Idaho, Iowa, and Virginia-cut taxes by more than 1 percent. Eight states including Kentucky, Maryland, Minnesota, New Hampshire, New York, Ohio, Rhode Island, and Washington, raised taxes by more than one percent. The remaining 31 states reporting tax information took no significant action in 2005.

While states increased revenue through taxes on businesses, sales, health care providers, tobacco, alcohol, and motor vehicles, they saw a net decrease of $329.7 million in personal income tax receipts.

Despite the good news for states, lawmakers are proceeding carefully with their fiscal 2006 budgets, as spending needs are expected to outpace modest revenue growth projections.

For the 46 reporting states, revenues are projected to grow by 2.7 percent above last year's level, while general fund appropriations are budgeted to grow 5.7 percent. Medicaid, K-12 and higher education spending are expected to grow by 5 to 7 percent.

Massachusetts lawmakers attending last week's NCSL conference said states are still facing major budget challenges, and said it's unlikely states will see the economic boom of a few years ago.

"Revenues are up since their precipitous fall, but the increases are slight, and we're not going to restore total revenue to the place we enjoyed in the late 1990s," said state Rep. James Marzilli (D-Arlington). "Every state's a little different but the thing that remains constant is our inability to meet current needs and our declining ability to pay off obligations incurred in the past."

The report is available at:  www.ncsl.org/programs/fiscal/presbta05.htm

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State House News Service
Thursday, August 25, 2005

House leader says it's too soon to cut taxes
By Amy Lambiaso


House leaders from both parties on Thursday cautioned against conditionally reducing the state's income tax rate and said relief for taxpayers may be more difficult to achieve.

Lawmakers in the House are a considering proposal approved unanimously by the Senate last month that would trigger an income tax cut when local aid spending rises to a certain level. And while they agree that taxpayers deserve a break, House leaders say the Senate proposal may not be the most equitable way to go about it.

Speaking to reporters after addressing the Malden Chamber of Commerce, House Speaker Salvatore DiMasi said the Senate proposal doesn't make any sense to him, since the tax cut would be tied to spending amounts. Under the legislation, the 5.3 percent income tax rate would begin to incrementally roll back to 5 percent once local aid categories equaled what they were in fiscal 2002.

"To me, it should be more about revenue," DiMasi said. "What happens if you artificially increase the local aid because that's your priority and cut all the social programs? Does that make any sense? No."

DiMasi also noted that the state currently has a mechanism in place to trigger an income tax cut once revenues reach a certain level. Under that state law, revenues collected during 2004 prompted an increase in the personal exemption amounts for individuals and married couples this year.

The Senate included the tax cut provision within a larger legislative package to raise more than $100 million by closing so-called corporate tax loopholes. The House and Senate have approved different versions of that legislation, which generates revenue spent in the fiscal 2006 budget.

In his 30-minute speech today used mostly to promote the House's $300 million plan for stimulating the economy, DiMasi told business leaders that the state's economic recovery has been "very slow," but is taking shape.

"We're not completely out of the woods, but I am pretty confident the economy is coming back," he said. "We've been very cautious with what we do."

The state lost more than 200,000 jobs since February 2001 and has added 50,300 new jobs, state officials reported last week. July was the 11th consecutive month in which the state added jobs.

Republican Senator Richard Tisei from Wakefield said today that the state has been able to restore a lot of the social and human services that were cut during the recession. But cities and towns are still suffering from the reduction in state aid during that time.

"Government in Massachusetts is a partnership between local government and state government," said Tisei, who co-sponsored the Senate tax cut proposal. "The state certainly considered it a partnership during the fiscal crisis to inject unprecedented local aid cuts. Now that the economy is improving and we have record amount of revenues coming into the state, it seems to me, as good partners, we should make the cities and towns whole again and treat them like partners and allow them to share in the new revenue. Once that's done, I think it's appropriate to look to give some tax relief back to the taxpayers."

Republican Gov. Mitt Romney has unsuccessfully lobbied for more than a year to reduce the income tax rate to 5 percent, arguing that taxpayers ought to reap the benefits of the economic recovery. Romney also argues the state needs to uphold the will of the voters who approved a tax cut on the 2000 ballot.

Most Democratic lawmakers are wary of reducing tax revenue when they say social services, health care, and education programs are in need of more state money.

House Minority Leader Bradley Jones (R-North Reading) also cautioned against the Senate proposal today, noting that not all cities and towns benefit from the local aid categories in the state budget - Chapter 70 education aid, Lottery aid, and Additional Assistance. Jones said larger cities like Boston and Cambridge receive a large share of Additional Assistance, while some communities don't receive any.

Under the Senate proposal, all three categories would have to reach fiscal 2002 levels to trigger the tax reduction.

"The devil is in the details on this one," Jones said. "We need to have a trigger of something that's more reasonably achievable."

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