Associated Press
Tuesday, January 18, 2000
Budget watchdogs warn against tax cuts, additional
spending
By Jean Mcmillan
BOSTON (AP) New tax cuts and additional increases in government spending could
mean big problems for state finances, according to the Massachusetts Taxpayers Foundation.
"While fiscal 2000 is likely to end with a modest surplus, without a change
in course this is a recipe for long-term disaster," Michael Widmer, the group's
president, said in a statement Monday accompanying a new study.
The MTF is a business-backed group highly respected on Beacon Hill for its budget
analyses.
But not everyone agrees with the group's outlook.
Barbara Anderson, who heads Citizens for Limited
Taxation, said the MTF has often been wrong in its projections and is apt to favor tax
cuts for the businesses that support it.
"For the most part, they are on the other side
of regular taxpayers and support only business and corporate tax breaks," said
Anderson, a promoter of a ballot question to roll back the state income tax to 5 percent.
However, she said, she agreed with the MTF concern
over government spending. The way to slow that, she said, is to cut taxes and give the
politicians less money to spend.
The MTF report, titled "State Budget '00: Expectations Soar, But Hard Landing
Ahead," found that spending had increased almost 20 percent since 1997.
At the same time, the report said, tax cuts have been enacted that will reduce tax
revenue by $1.7 billion or 11 percent by 2002. That included a doubling of personal
exemptions, tax relief for the elderly and a cut in the income tax from 5.95 percent to
5.75 percent.
And that doesn't include the proposal to roll back the state income tax and
another giving tax breaks to those who pay tolls and local auto excise taxes.
If both of the latter measures pass, Widmer said, the tax revenue base will have
been reduced by a total of 25 percent by 2003.
The report said the combination of approved tax cuts and additional spending
largely eliminated surpluses of $1.2 billion in 1998 and $550 million in 1999.
Widmer said no one was predicting a recession, but said the tight labor market
alone will put limits on how much more the state's economy can grow.
Meanwhile, he said, the state still faces such costs as the Central Artery highway
project, local education aid, Medicaid and pension expenses.
"It will only become a crisis if we don't make those choices and try to do
both major taxes and continue to have increased spending at the present rate," he
said.
The MTF doesn't oppose a further cut in the income tax, but recommends that it
should be tied to economic growth, not automatic.
Administration and Finance Secretary Andrew Natsios said he couldn't comment
directly on the report because he hadn't seen it.
But, he said, he believed the state can afford the $1.4 billion state income tax
rollback, which is being backed by Gov. Paul Cellucci, if there are no major new spending
initiatives.
"You obviously can't spend an unlimited amount and have unlimited tax
cuts," he said.
Natsios said the state has been careful to build up reserves of nearly $2 billion
to prepare for any unexpected downturn in the economy.
The Boston Globe
Tuesday, January 18, 2000
Massachusetts budget may jeopardize fiscal health,
watchdog group warns
By Brian MacQuarrie
Globe Staff
Despite flush economic times in which state ledgers are filled with black ink, a
government watchdog group says the Massachusetts budget is "a recipe for long-term
disaster."
In an annual report to be released today by the Massachusetts Taxpayers
Foundation, the group bases its concern on a succession of large tax cuts and spending
increases that the nonprofit organization says cannot be sustained indefinitely.
That combination, the foundation argues, "is propelling the state into a
period of much tighter budgeting that will require difficult tradeoffs among
priorities."
The growth in state spending is expected to outstrip revenue growth in fiscal 2000
for the second consecutive year. Such an imbalance, said foundation president Michael J.
Widmer, has not occurred since the state's fiscal crisis of the late 1980s.
Based on state appropriations and income projections, government spending is
scheduled to grow 6.6 percent this fiscal year, compared with a 4 percent increase in
revenue, according to foundation figures.
But while the Legislature has shown more willingness to fund increases in social
services and education, lawmakers also have approved a total of $1.7 billion in tax cuts
in recent years. Suc movement in opposite directions is doomed to create problems,
Widmer warned.
"It's a paradox because we're in such good economic times that it's difficult
to understand that we could be entering a period in which the situation has changed,"
Widmer said.
The taxpayers group, however, praised Governor Paul Cellucci and lawmakers for
their "wise use of recent surpluses" and measures to strengthen the state's
fiscal health, including MBTA overhaul, plans for the tobacco-settlement money, and an
extension of the investment-tax credit.
However, the foundation said, the state's fiscal health will be jeopardized if two
proposed initiative petitions -- to reduce the state income tax rate to 5 percent and to
provide an income tax credit for tolls and automobile excise taxes -- are placed on the
November ballot and become law, the foundation said.
Such a development would deprive the state of an additional $2 billion in revenue,
Widmer said.
The House chairman of the Ways and Means Committee, Representative Paul R. Haley
of Weymouth, echoed Widmer's argument that additional tax cuts would strain the state's
efforts to maintain a balanced budget.
"If you cut taxes that dramatically," Haley said, "you have to hold
the line on so many different accounts and make some tough decisions" in areas such
as "education funding, both in local and higher ed, our assistance to cities and
towns, and expansion of human services."
But the caution flag raised about further tax cuts will not slow Cellucci's push
for the 5 percent rate, gubernatorial spokesman Jason Kauppi said yesterday. Indeed,
Cellucci's budget proposal for fiscal 2001, scheduled to be released Jan. 26, will be
based on that rate, Kauppi said. The state Legislature recently approved a budget that
would reduce the state's income tax rate from 5.95 percent to 5.75 percent over three
years.
"We have shown that tax cuts drive the economy and actually end up increasing
state revenues, which allows us to meet the priorities of the commonwealth," Kauppi
said. "We think that reducing the income tax will ... force fiscal discipline upon
the Legislature."
The need to mesh tax policy with spending increases takes on added urgency, the
foundation said, because the so-called "budget-buster" accounts present
taxpayers with "a daunting list of largely unavoidable cost increases."
Those include surging expenses in Medicaid and state health insurance, pensions,
funds to sustain education reform, MBTA assistance, capital projects such as the Big Dig,
and social services ranging from housing to care for the elderly.
Even a continued expansion of the national economy cannot, by itself, guarantee
similar good times for Massachusetts, the foundation said.
The state's tight labor market is likely to become an increasing drag on economic
progress here, the group predicted.
