CITIZENS   FOR  LIMITED  TAXATION
and the
Citizens Economic Research Foundation

CLT UPDATE
Thursday, December 1, 2005

Retro Tax fight continues behind the Beacon Hill scene


Taxes are unpopular enough without being imposed retroactively. Massachusetts residents who are being hit with capital gains tax bills from the first half of 2002 deserve a refund....

Wealthy or not, they should not be taxed retroactively. The Legislature would send a strong message about its commitment to sound tax policy by adopting the governor's plan.

A Boston Globe editorial
Tuesday, November 29, 2005
Taxing common sense


There's room to argue about tax policy, but all sides should agree on some principles, one of the most important being this: Once you pay your taxes based on the rules in place at the time, they should be considered paid in full. No government should be able to come back years later and charge you again....

The Legislature, now in recess, should get back to business before the end of the year to straighten out this mess.

A MetroWest Daily News editorial
Wednesday, November 30, 2005
Fix the retro tax mess


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'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....

"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." ...

"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
June 11, 2005
Romney bill aims to rebate 2002 capital gains taxes
Governor's move sparks debate


The state's economic paucity of the last few years seems to be giving way to an economic glut. Massachusetts has been taking in revenue at a fast clip, including that from a record-breaking lottery year.

Some $1.7 billion in "rainy day" funds have already been tallied, with another $1.3 billion expected to pour into the state's coffers before the end of the fiscal year in the July.

With nearly $3 billion in or nearly in hand, lawmakers are naturally arguing about where to spend it....

The tax rate should be rolled back; voters demanded it at the ballot box. But not now. Not while the state's financial health is still precarious, and not while towns and cities are still being shortchanged.

A North Adams Transcript editorial
Monday, November 28, 2005
Don't roll back


Chip Ford's CLT Commentary

When The Boston Globe and The MetroWest Daily News both editorialize in favor of tax fairness, join the chorus calling for an end to the unconscionable retroactive capital gains tax, nearly everyone in the state is singing from the same hymn book. So how long is it going to take "The Best Legislature Money Can Buy" to wake up to reality and end this embarrassment; do the right thing, put it behind them? Our "full-time" Legislature needs to admit its mistake and make it right with the taxpayers they've unnecessarily put through hell during this holiday season.

Almost everyone's pulling for the beleaguered taxpayer now that we know that 48,000 innocent taxpayers are affected. CLT was the first to express support for changing the date of the tax hike to 2003, back in June, as the so-called Massachusetts Taxpayers Foundation got in the way, as usual. Its president, Michael Widmer, believed the state needs the money more than taxpayers -- even if this means a retroactive tax. This is what we have come to expect from Widmer, who served as Mike Dukakis's Director of Communications and Deputy Chief Secretary. [see MTF's website] I wonder what his Big-Business Fat-Cat members think about his position on the retroactive capital gains tax -- or even if they know what his public posture has been?

Maybe even The North Adams Transcript will come around on this one, but I wouldn't hold my breath. Any newspaper that can lay out clearly why the voters' tax rollback is so ripe for rolling back -- then shamelessly editorialize that it shouldn't be rolled back anyway -- is probably a hopelessly lost cause.

Chip Ford


Barbara Anderson's CLT Commentary

There are several roll calls relating to the retroactive capital gains tax. Some of them are "procedural," which is often merely a follow-the-leadership vote, not an indication of a Democrat legislator's true position.

We plan to publish them all but this seems to be the best single indicator if you want to know which legislators are inclined to vote to change the effective date of the capital gains tax hike to January 1, 2003 instead of January 1, 2002.

This vote took place before the tax bill notice was sent to affected taxpayers, before legislators were aware of the full impact, and before the state knew about the strong September and October revenue growth, so should be considered a starting point for lobbying. House Republicans, led by Minority Leader Brad Jones (R-North Reading), George Peterson (R-Grafton) and Vinny deMacedo (R-Plymouth, tried to amend a corporate loophole-closing bill with the new date. The amendment was defeated 48-102. Nay is to tax retroactively, Yea to change the date to Jan. 1, 2003.

S2156 Roll Call Vote

Barbara Anderson


The Boston Globe
Tuesday, November 29, 2005

A Boston Globe editorial
Taxing common sense


Taxes are unpopular enough without being imposed retroactively. Massachusetts residents who are being hit with capital gains tax bills from the first half of 2002 deserve a refund.

The problem dates to the Legislature's vote in 2002 to raise capital gains tax rates beginning on May 1 of that year. The Supreme Judicial Court ruled in 2004 that, under the Massachusetts Constitution, taxes cannot be raised midyear. The SJC gave the Legislature a choice: Put off the tax increase to January 2003 or impose it retroactively to January 2002. The Legislature chose the latter path, which brought in more revenue to the state but is unfair to residents who made financial decisions, such as whether to sell a home, under one set of tax expectations only to have them change after the fact.

Initially the Revenue Department delayed sending out the retroactive tax bills, hoping that the Legislature would devise a solution. But preliminary assessments went out earlier this month, and the only relief from the Legislature was a plan to forgive the tax for people who would pay $100 or less and a waiver of interest payments for everybody else.

That proposal was included in a broader bill closing tax loopholes. Governor Romney sent the entire bill back with a suggestion that the lawmakers reject retroactivity in favor of a phased-in refund -- about $250 million spread over three years. The Legislature should adopt Romney's plan.

It would involve a loss of revenue of about $85 million this fiscal year as well as in 2007 and 2008, money that could be spent on education and social programs. But the retroactive tax bills are so unfair that the state should send back the money. A phased-in process would reduce the strain on the budget, and revenues are growing sufficiently so the refunds would not cause a crisis.

The governor's plan builds on suggestions by Senator Cynthia Creem, a Newton Democrat who is cochairman of the Revenue Committee, and lawyers for Engel and Schultz, a Boston law firm that brought the suit which prompted the SJC decision. Creem's support shows that the plan enjoys bipartisan backing. A spokesman for Engel and Schultz says the firm would forgo another lawsuit if the Legislature adopted the governor's plan. It's time to refund the money and get the question out of the courts.

Many of the 157,000 people eligible for refunds are quite wealthy. Romney himself might get one, which he said he would donate to charity. But many are middle-class people who generated capital gains in 2002. Wealthy or not, they should not be taxed retroactively. The Legislature would send a strong message about its commitment to sound tax policy by adopting the governor's plan.

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The MetroWest Daily News
Wednesday, November 30, 2005

A MetroWest Daily News editorial
Fix the retro tax mess

There's room to argue about tax policy, but all sides should agree on some principles, one of the most important being this: Once you pay your taxes based on the rules in place at the time, they should be considered paid in full. No government should be able to come back years later and charge you again.

That's exactly what is happening for some 50,000 Massachusetts taxpayers, who are being billed now for taxes they weren't assessed back in 2002. It's wrong, it's unfair and it should be fixed.

This turn of events is mostly unintentional. Faced with a budget crunch, the Legislature raised the tax on capital gains in 2002 in the middle of the calendar year. People who acquired capital gains during the first four months of the year were taxed at one rate, while those who acquired them after paid at a higher rate.

It was a sloppy piece of legislating that didn't hold up to a court challenge. The Supreme Judicial Court ruled the state must tax all gains during a particular tax year at the same rate, and ordered the higher tax rate applied retroactively to Jan. 1, 2002.

Those bills are now going out, cutting a wide swath. Wealthy entrepreneurs who sold businesses in early 2002 are looking at big bills, as are struggling senior citizens who cashed in their investments to pay medical bills and parents who sold mutual funds to scrape together college tuition.

The inequity of these retroactive tax bills is widely recognized, but not easily fixed. It would be best to simply cancel the retroactive bills, or allow those paying them to deduct the costs from future tax payments, but that would again create two classes of 2002 taxpayers. Gov. Mitt Romney, always one to support a tax cut, wants to make the higher tax rate effective Jan. 1, 2003, making all who paid 2002 capital gains taxes at the higher rate eligible for refunds.

That option, however, would cost the state budget around $250 million. Faced with that cost, the Legislature balked, approving just exemptions for the smallest affected taxpayers and a break on interest payments.

Romney's bill makes more sense. Those receiving retroactive tax bills would still have to pay them, but they would get refunds -- as would all others who paid capital gains taxes at the higher rate in 2002. The refunds would be spread out over three years, giving taxpayers and the state Legislature the opportunity to build the payments into their fiscal planning.

The Legislature, now in recess, should get back to business before the end of the year to straighten out this mess.

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The Boston Globe
June 11, 2005

Romney bill aims to rebate 2002 capital gains taxes
Governor's move sparks debate
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."

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The North Adams Transcript
Monday, November 28, 2005

A Transcript editorial
Don't roll back


The state's economic paucity of the last few years seems to be giving way to an economic glut. Massachusetts has been taking in revenue at a fast clip, including that from a record-breaking lottery year.

Some $1.7 billion in "rainy day" funds have already been tallied, with another $1.3 billion expected to pour into the state's coffers before the end of the fiscal year in the July.

With nearly $3 billion in or nearly in hand, lawmakers are naturally arguing about where to spend it.

Republicans, led by Gov. Mitt Romney, want to lower the income tax rate to 5 percent from its current 5.3 percent. Reasonable enough, considering voters approved that back in 2000. At the time, the rate was 5.75 percent; it was to be rolled back over a three-year period.

But then came the terror attacks of 2001, and an economic meltdown in the state. The Legislature wisely froze the rollback in 2002, saving the state millions in revenue as it tried to fill a gaping deficit hole.

Some $3 billion in cuts still had to be made in the budget, much of it on the backs of towns, cities and local school districts. Locally, community and parent groups have raised money to fill the gaps left by budget cuts affecting teacher positions, extracurricular activities and athletics. Communities have put off road improvements and capital projects, and hiring workers.

Lawmakers are right to be cautious about cutting taxes when those projected revenues haven't been collected yet, and when communities are still feeling the pinch from the last three years.

Rolling back the tax would be a small boon for most taxpayers we're talking three-tenths of a percent but the toll would be paid by the state's municipalities. The Massachusetts Taxpayers Foundation says, based on 2005 dollar values, the state is actually distributing $750 million less in local aid than it did in 2002. Rolling back the tax would cost about $600 million.

Financially strapped communities turn to property taxes and fees to ease the burden, and to Proposition 2 overrides. That has more of a direct affect on most taxpayers' wallets than the rollback would.

The tax rate should be rolled back; voters demanded it at the ballot box. But not now. Not while the state's financial health is still precarious, and not while towns and cities are still being shortchanged.

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