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CLT UPDATE
Friday. December 18, 2015

The New Year starts with a tax cut


The Massachusetts state income tax rate will fall slightly in January, the third-to-last step in the tax rate's odyssey from 5.95 percent in 1999 to its potential nadir two years from now at the voter-approved level of 5 percent.

Gov. Charlie Baker's budget office confirmed Tuesday that the last of the economic benchmarks needed to trigger the reduction had been met resulting in the automatic lowering of the tax rate on income to 5.1 percent, from 5.15 percent....

Voters in 2000 passed a ballot law directing the state to lower the income tax rate to 5 percent over three years, but in 2002 the Legislature stepped in to block the final decrease as it dealt with falling revenues and an economic downturn that was putting a strain on state budgets and services.

In its place, the House and Senate agreed on a long-term plan to slowly ratchet the income tax rate down to 5 percent by half of a percentage point a year, provided that certain economic triggers were hit....

While Republicans and Citizens for Limited Taxation have used the 15-year saga of trying to achieve a 5 percent income tax rate as campaign fodder for many cycles, the goal could be achieved within Baker's first term if economic growth continues to drive reductions in 2017 and 2018 when Baker will be presumably be seeking re-election.

That could also be the year voters decide on another major tax policy.

Raise Up Massachusetts, the coalition behind last year's mandatory sick leave law, has proposed a change to the state constitution that would tax earnings above $1 million at a rate 4 percentage points higher than the state income tax.

State House News Service
Tuesday, December 15, 2015
Mass. workers will receive Jan. 1 income tax cut


The state income tax rate will drop next year for all Massachusetts residents.

As of Jan. 1, 2016, the income tax rate will be 5.10 percent, a drop from the current 5.15 percent.

"Meeting the requirements needed to reduce the income tax rate is a sign that the Massachusetts economy remains strong," Gov. Charlie Baker said in a statement. "Allowing citizens across the Commonwealth to keep more money in their pockets will allow the state's economy to continue growing in 2016."

Under the new tax rate, someone paying state income taxes on $66,000 would pay around $33 less.

A ballot initiative passed by voters in 2000 required the state to reduce the income tax rate to 5 percent, from what was then 5.85 percent. Lawmakers passed a bill in 2002 setting the reduction at 0.05 percent a year in each year that certain economic triggers are met.

The Springfield Republican
Wednesday, December 16, 2015
Massachusetts income tax rate to drop to 5.10 percent in 2016


Driven by a growing economy, Massachusetts tax revenues are expected to grow by between 3.8 percent and 4.2 percent in the next fiscal year, according to the state's top revenue official.

"We're seeing pretty good growth in both jobs and the beginning of some increasing wages in Massachusetts," said Massachusetts Revenue Commissioner Mark Nunnelly.

But there are potential dangers. The retiring of baby boomers is expected to shrink Massachusetts' work force in the coming years, and there remains uncertainty in the global economy, in Europe, China and the Middle East.

The state is also expected to lose money due to a cut in income tax rates which is part of the reason expected growth is below the 4.6 percent average of the last five years.

Nunnelly, Treasurer Deborah Goldberg, and several Massachusetts economists delivered their predictions for state revenues at a hearing of the Legislature's Joint Committee on Ways and Means on Wednesday....

House Ways and Means Committee Chairman Brian Dempsey, D-Haverhill, said lawmakers need to continue adding money to the state's rainy day fund and paying off pension obligations in order to satisfy bond rating agencies.

Secretary of Administration and Finance Kristen Lepore warned of another "difficult budget year," pointing to a "significant structural gap." Policymakers used one-time money to balance the current fiscal year's budget, so they will have to find new sources of funding next year....

Nunnelly said in the last year and a half, the state's economy has continued to grow, with increased investments, improvements in the labor market, and increases in consumer confidence. The Department of Revenue predicts that current fiscal year revenues will come in $69 million to $231 million above what was projected when the budget was passed, at between $25.68 billion and $25.84 billion.

But the state may still have to trim its budget mid-year, if spending is also higher than anticipated....

Looking toward fiscal year 2017, Nunnelly predicted that the state will collect between $26.65 billion and $26.89 billion, which represents growth of 3.8 percent to 4.2 percent over the current year.

The estimate anticipates cuts in the income tax rate over the next two years. Due to a ballot initiative passed in 2000, the income tax rate is scheduled to drop from 5.15 percent this year to 5.1 percent in 2016 and, potentially, to 5.05 percent in 2017.

The biggest chunk of the state's tax revenue is the income tax, followed by sales and corporate taxes. According to Nunnelly's estimates, a strong labor market is expected to contribute to increases in all of those revenues.

The Springfield Republican
Thursday, December 17, 2015
Massachusetts tax revenues expected to grow by around 4 percent in 2017, economists say


House Ways and Means Chairman Brian Dempsey on Wednesday said he plans to build a state budget for fiscal 2017 using growth in existing state revenues and downplayed consideration of new or higher taxes next year.

Speaking after a hearing where experts testified about their expectations for growth of current tax revenues, the Haverhill Democrat said taxes are "not on the table at all" for the debate over spending priorities in 2016, a year when lawmakers will be up for re-election in November.

"We anticipate building a budget based on the revenue growth projections, and we will determine what that number is over the course of the next few days or weeks," Dempsey told reporters. Asked for what went into his thinking on the matter, Dempsey noted increases to gas and sales taxes over recent years....

Spilka noted the income tax will "probably" make another statutorily mandated drop next year to 5.1 percent - administration officials on Tuesday confirmed the rate drop will occur - saving the average taxpayer $30 and continuing a 15-year trend where she said the state has experienced a nearly $2 billion annual drop in revenue as the tax rate ratcheted down from 5.95 percent.

"It's easy to see how we must prepare for an ever-shrinking pot of funds," the Ashland Democrat said.

Standard and Poor's, a bond and credit rating agency, downgraded the state's credit outlook from stable to negative last month, while the state maintained its bond rating at AA+, following several years of spending money from the rainy day fund.

The state's stabilization fund has a balance of $1.2 billion, which Dempsey said is about half as large as it should be. Lawmakers have faced criticism of late from drawing too heavily from the fund during recent years marked by economic growth and rising tax collections.

State House News Service
Wednesday, December 16, 2015
Dempsey: New taxes "not on the table" for next year's budget


The revenue prognosticators announced their forecasts yesterday, an exercise that comes across as wonkfest but has real-world implications. Beacon Hill leaders will have to arrive at a consensus forecast early next year in building the 2017 budget, and a conservative revenue estimate will only intensify an ongoing budget squeeze.

The problem is this: Having roughly $1 billion in new tax revenue come in, about 4 percent growth, likely won't be enough to cover spending needs. Revenue growth over the past five years has averaged 4.6 percent, but there is never quite enough money coming in.

MASSterList
Thursday, December 17, 2015
[Excerpt]
A little budgetary caution sets in and why cuts (likely) are coming
By George Donnelly and Sara Brown


Chip Ford's CLT Commentary

In 2002 over a dozen years ago the Legislature unilaterally "froze" the voters' mandate that it be rolled back to 5 percent, giving taxpayers another Beacon Hill middle-finger salute. Instead of returning the income tax rate to its historic 5 percent in 2003, as 60% of the voters had ordered on the 2000 ballot, starting on January 1 their "freeze" will thaw another degree or two precisely five one-hundredths of one percent.

CLT has fought for that rollback for decades since, collected the signatures and put it on that 2000 ballot where the voters resoundingly demanded it be rolled back to 5 percent.

Five one-hundredths of one percent. That equates to 5/100ths of a penny on every dollar we pay in state income tax. Pardon me for not popping the champagne cork yet, but it's a better direction than the alternative.  This amounts to a savings of about $33 for someone paying taxes on an income of $66,000.  But again, any savings is better than more confiscation.

Remember, when the income tax was hiked in 1989 by Gov. Michael Dukakis and the Democrat majority in the Legislature they promised it would be only "temporary" in fact, they promised it would be for "only 18 months." [See The Promise here, from our 2000 ballot campaign]

Still, almost three decades of the broken promises and arrogance later, so used to having those extra billions of ill-gotten gains, some Democrats in the Legislature still have a sense of entitlement to our money. Senate Ways and Means Chairwoman Karen Spilka (D-Ashland) griped that the state has experienced a nearly $2 billion annual drop in revenue as the tax rate ratcheted down from 5.95 percent.  "It's easy to see how we must prepare for an ever-shrinking pot of funds," she said.

Madame Chairwoman, that "temporary" tax hike never should have existed for you and your cohorts to spend for the past twenty-five years.  That "nearly $2 billion annual drop in revenue" cumulatively amounts to many, many more billions that came out of our and your constituents' pockets since the "temporary" promise made by the Legislature was broken.

Regardless, and despite the miniscule income tax reduction, according to Department of Revenue Commissioner Mark Nunnelly, "Massachusetts tax revenues are expected to grow by between 3.8 percent and 4.2 percent in the next fiscal year over the current year . . . the state will collect between $26.65 billion and $26.89 billion."  Further, the DOR "predicts that current fiscal year revenues will come in $69 million to $231 million above what was projected when the budget was passed, at between $25.68 billion and $25.84 billion."

George Donnelly and Sara Brown observed:  "The problem is this: Having roughly $1 billion in new tax revenue come in, about 4 percent growth, likely won't be enough to cover spending needs. Revenue growth over the past five years has averaged 4.6 percent, but there is never quite enough money coming in."

As we've so often asserted, More Is Never Enough (MINE).  The state does not have a revenue problem it has a spending problem.

Chip Ford


 

State House News Service
Tuesday, December 15, 2015

Mass. workers will receive Jan. 1 income tax cut
By Matt Murphy


The Massachusetts state income tax rate will fall slightly in January, the third-to-last step in the tax rate's odyssey from 5.95 percent in 1999 to its potential nadir two years from now at the voter-approved level of 5 percent.

Gov. Charlie Baker's budget office confirmed Tuesday that the last of the economic benchmarks needed to trigger the reduction had been met resulting in the automatic lowering of the tax rate on income to 5.1 percent, from 5.15 percent.

While Baker and the Legislature budgeted for the expected lowering of the income rate in January by removing $74 million in projected revenues from its tax forecast for the fiscal 2016 budget, the income tax decrease is expected to result in $152 million less in tax collections in fiscal 2017, which starts next July.

Under a separate law, the Massachusetts minimum wage rate will rise to $10 an hour on Jan. 1, and the Bay State will be tied with California for the nation's highest minimum wage, according to the group Business for a Fair Minimum Wage.

The administration and lawmakers could also choose to budget for another income tax decrease in January 2017, which would lower available revenues for budgeting next year even further.

Voters in 2000 passed a ballot law directing the state to lower the income tax rate to 5 percent over three years, but in 2002 the Legislature stepped in to block the final decrease as it dealt with falling revenues and an economic downturn that was putting a strain on state budgets and services.

In its place, the House and Senate agreed on a long-term plan to slowly ratchet the income tax rate down to 5 percent by half of a percentage point a year, provided that certain economic triggers were hit.

The first of five triggers was met in September when Department of Revenue Commissioner Mark Nunnelly reported that fiscal 2015 inflation-adjusted baseline tax revenues grew 5.37 percent over fiscal 2014, higher than the 2.5 percent growth rate required under the tax cut trigger law.

Earlier this year, Senate leaders passed a proposal over objections from Republicans and some Democrats to pay for an expansion of the earned income tax credit for low-income families by freezing the income tax rate at 5.15 percent.

The House rejected that proposal, and eventually legislative leaders and Gov. Baker reached a deal to pay for the EITC expansion without touching the income tax cut trigger law, allowing this latest decrease to occur.

Both Baker and Senate President Stanley Rosenberg are interested in further expanding the earned income tax credit, potentially in 2016.

While Republicans and Citizens for Limited Taxation have used the 15-year saga of trying to achieve a 5 percent income tax rate as campaign fodder for many cycles, the goal could be achieved within Baker's first term if economic growth continues to drive reductions in 2017 and 2018 when Baker will be presumably be seeking re-election.

That could also be the year voters decide on another major tax policy.

Raise Up Massachusetts, the coalition behind last year's mandatory sick leave law, has proposed a change to the state constitution that would tax earnings above $1 million at a rate 4 percentage points higher than the state income tax.

The change is being pitched as a way to address income inequality and generate new revenues for education and transportation infrastructure. The Department of Revenue estimates that the millionaires tax would generate roughly $1.9 billion in new income tax revenues to the state.


The Springfield Republican
Wednesday, December 16, 2015

Massachusetts income tax rate to drop to 5.10 percent in 2016
By Shira Schoenberg


The state income tax rate will drop next year for all Massachusetts residents.

As of Jan. 1, 2016, the income tax rate will be 5.10 percent, a drop from the current 5.15 percent.

"Meeting the requirements needed to reduce the income tax rate is a sign that the Massachusetts economy remains strong," Gov. Charlie Baker said in a statement. "Allowing citizens across the Commonwealth to keep more money in their pockets will allow the state's economy to continue growing in 2016."

Under the new tax rate, someone paying state income taxes on $66,000 would pay around $33 less.

A ballot initiative passed by voters in 2000 required the state to reduce the income tax rate to 5 percent, from what was then 5.85 percent. Lawmakers passed a bill in 2002 setting the reduction at 0.05 percent a year in each year that certain economic triggers are met.

The triggers ensure that the state's economy is strong enough to withstand the loss of tax revenue. The Department of Revenue certified on Tuesday that the state had met the final economic trigger this year.

In crafting the state budget for the current fiscal year, lawmakers had assumed that the tax rate would decrease, so the budget takes the lower rate into account. The cut will result in the state taking in $74 million less in income taxes in the second half of fiscal year 2016, which ends June 30.

"This is good news for the taxpayers with no new impact on the state's fiscal outlook," said Secretary of Administration and Finance Kristen Lepore.


The Springfield Republican
Thursday, December 17, 2015

Massachusetts tax revenues expected to grow by around 4 percent in 2017, economists say
By Shira Schoenberg


Driven by a growing economy, Massachusetts tax revenues are expected to grow by between 3.8 percent and 4.2 percent in the next fiscal year, according to the state's top revenue official.

"We're seeing pretty good growth in both jobs and the beginning of some increasing wages in Massachusetts," said Massachusetts Revenue Commissioner Mark Nunnelly.

But there are potential dangers. The retiring of baby boomers is expected to shrink Massachusetts' work force in the coming years, and there remains uncertainty in the global economy, in Europe, China and the Middle East.

The state is also expected to lose money due to a cut in income tax rates which is part of the reason expected growth is below the 4.6 percent average of the last five years.

Nunnelly, Treasurer Deborah Goldberg, and several Massachusetts economists delivered their predictions for state revenues at a hearing of the Legislature's Joint Committee on Ways and Means on Wednesday.

The hearing is the first step in developing a state budget for fiscal year 2017, which begins July 1, 2016. The Ways and Means Committee will now develop its own estimate of how much money the state will raise from taxes and will base state spending on that figure.

State budget writers say they will be looking to balance the need to provide state services with fiscal responsibility.

"We've seen a steady economic recovery reflected in the revenue trends for fiscal year '16, but we must also be prepared for the next fiscal shock," said Senate Ways and Means Committee Chairman Karen Spilka, D-Ashland. "It's not a matter of if this will happen but when."

House Ways and Means Committee Chairman Brian Dempsey, D-Haverhill, said lawmakers need to continue adding money to the state's rainy day fund and paying off pension obligations in order to satisfy bond rating agencies.

Secretary of Administration and Finance Kristen Lepore warned of another "difficult budget year," pointing to a "significant structural gap." Policymakers used one-time money to balance the current fiscal year's budget, so they will have to find new sources of funding next year.

The hearing is also an opportunity for the committee to receive an update on how the state is doing in the current fiscal year. Despite growing revenues, Gov. Charlie Baker is still considering mid-year budget cuts.

Nunnelly said in the last year and a half, the state's economy has continued to grow, with increased investments, improvements in the labor market, and increases in consumer confidence. The Department of Revenue predicts that current fiscal year revenues will come in $69 million to $231 million above what was projected when the budget was passed, at between $25.68 billion and $25.84 billion.

But the state may still have to trim its budget mid-year, if spending is also higher than anticipated.

Gov. Charlie Baker told The Republican/MassLive.com that he is still working through the question of whether to institute mid-year executive branch budget cuts, and he anticipates deciding in January.

"We view this as not a first resort but a last resort," Baker said of potential cuts, which are referred to as 9C cuts.

"We're continuing to work our way through fiscal '16 spending plans that people have submitted and are processing that against the revenue piece," Baker said. "As we've said before, there's a delta there, it's a negative delta, and the real question is can we come up with other ways to solve for the delta without having to go to 9Cs."

Looking toward fiscal year 2017, Nunnelly predicted that the state will collect between $26.65 billion and $26.89 billion, which represents growth of 3.8 percent to 4.2 percent over the current year.

The estimate anticipates cuts in the income tax rate over the next two years. Due to a ballot initiative passed in 2000, the income tax rate is scheduled to drop from 5.15 percent this year to 5.1 percent in 2016 and, potentially, to 5.05 percent in 2017.

The biggest chunk of the state's tax revenue is the income tax, followed by sales and corporate taxes. According to Nunnelly's estimates, a strong labor market is expected to contribute to increases in all of those revenues.

"The Massachusetts economy is doing pretty well," Nunnelly said.

Estimates by other economists varied, but also generally reflected moderate growth.

The Massachusetts Tax Foundation estimates 3.8 percent revenue growth in fiscal year 2017. It attributes the slower than average growth to tax cuts - the income tax cut and an expansion of the earned income tax credit and to a projected drop in capital gains tax revenue.

The Tax Foundation noted that baby boomer retirements in Massachusetts are expected to result in a decline in job growth in coming years. Deflation in Europe, debt in China, falling oil prices and continued turmoil in Russia and the Middle East all threaten economic growth.

Eileen McAnneny, president of the Massachusetts Taxpayers Foundation, urged lawmakers to balance the budget without using one-time revenues and to put more money into the state's rainy day fund, a reserve available in case of fiscal crisis. "These actions are vital to prepare us for the heightened challenges to economic growth that we face due to demographic shifts in Massachusetts and the numerous economic and geopolitical global risks that escalate each day," McAnneny said.

Michael Goodman, executive director of the Public Policy Center at UMass Dartmouth, said while he is "optimistic" about the state and country's economic prospects, there are risks. In the short term, he noted a weak global economy. In the long-term, he said Massachusetts' economic growth is being put at risk by high electricity rates, poor educational performance by students in urban schools, a lack of housing, inadequate transportation infrastructure and climate change.

Economists at the Beacon Hill Institute at Suffolk University estimated 5.6 percent growth in fiscal year 2017, largely driven by growth in personal income tax payments.


State House News Service
Wednesday, December 16, 2015

Dempsey: New taxes "not on the table" for next year's budget
By Andy Metzger


House Ways and Means Chairman Brian Dempsey on Wednesday said he plans to build a state budget for fiscal 2017 using growth in existing state revenues and downplayed consideration of new or higher taxes next year.

Speaking after a hearing where experts testified about their expectations for growth of current tax revenues, the Haverhill Democrat said taxes are "not on the table at all" for the debate over spending priorities in 2016, a year when lawmakers will be up for re-election in November.

"We anticipate building a budget based on the revenue growth projections, and we will determine what that number is over the course of the next few days or weeks," Dempsey told reporters. Asked for what went into his thinking on the matter, Dempsey noted increases to gas and sales taxes over recent years.

Changes in tax law have to originate in the House. The more liberal of the two legislative branches, the Senate was stymied last year in attempts to increase taxes on certain tobacco products and re-work state income taxes.

"Right now there has been no discussion about taxes other than the ballot initiative," Senate Ways and Means Chairwoman Karen Spilka told reporters after the hearing. Petitioners have proposed a constitutional amendment that would establish a surtax on incomes over $1 million. That amendment, if it reaches the ballot, would not go before voters until at least 2018.

Kicking off development of next year's budget, the state's two legislative budget-writers on Wednesday anticipated lean times and praised efforts to put the state on more stable financial footing.

Spilka noted the income tax will "probably" make another statutorily mandated drop next year to 5.1 percent - administration officials on Tuesday confirmed the rate drop will occur - saving the average taxpayer $30 and continuing a 15-year trend where she said the state has experienced a nearly $2 billion annual drop in revenue as the tax rate ratcheted down from 5.95 percent.

"It's easy to see how we must prepare for an ever-shrinking pot of funds," the Ashland Democrat said.

Standard and Poor's, a bond and credit rating agency, downgraded the state's credit outlook from stable to negative last month, while the state maintained its bond rating at AA+, following several years of spending money from the rainy day fund.

The state's stabilization fund has a balance of $1.2 billion, which Dempsey said is about half as large as it should be. Lawmakers have faced criticism of late from drawing too heavily from the fund during recent years marked by economic growth and rising tax collections.

"We will continue to prioritize stabilization. We will continue to prioritize pension funding," Dempsey said. "At the same time we'll continue to make sure that we're providing adequate resources to those critical services that are so important to the citizens of the Commonwealth."

Dempsey noted Massachusetts still outpaces the majority of the other states in the size of its reserve fund and said that the state should get credit for recently taking four years off its pension funding schedule "at a cost" of about $340 million over the last two fiscal years. He said, "Perhaps we could have directed that money toward the rainy day fund."

 

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Citizens for Limited Taxation    PO Box 1147    Marblehead, MA 01945    508-915-3665

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