The Boston Globe
Tuesday, May 23, 2000
Think tank warns against tax cuts
By Michael Crowley
Globe Staff
Recent tax cuts are draining the state's reserves and
leaving Massachusetts more vulnerable to a recession, while three more proposed tax cuts
could cause a budget crisis in an economic downturn, according to the Center on Budget and
Policy Priorities.
The center, a liberal think tank in Washington, D.C.,
released a study yesterday downgrading its estimate of the state's ability to weather a
recession without major spending cuts or tax hikes.
Last year the center cited Massachusetts as one of the
states best insulated against a recession because of the size of its reserves, an
assessment often cited by the Cellucci administration as it has pushed for new tax cuts.
But the center's new study says that a 0.2 percent
income tax cut adopted in November, which will eventually total $550 million per year, has
weakened the state's reserves. The proposed new cuts, which total $1.9 billion per year,
could lead to a budget deficit of almost $5 billion in a recession like that of the early
1990s.
"Unless you believe that economic cycles have
been repealed and we're never going to have another recession again, these tax cuts are
unaffordable," said Jim St. George, executive director of the Tax Equity Alliance for
Massachusetts. "Even if none of these cuts pass, we're already going to
struggle."
A leader of the group pushing for Cellucci's income
tax cut dismissed the report as a misguided analysis. "It's a far left-wing group
that's affiliated with bigger government," said Paul A. Melkonian, chairman of
Cellucci's Tax Rollback Committee.
Cellucci is promoting a three-year rollback of the
state income tax from 5.75 percent to 5 percent, at an annual cost of $1.1 billion, which
is likely to appear on the statewide ballot in November.
In addition to Cellucci's income tax cut, the study
also gauges the impact of two other tax cuts headed for the November ballot: a $500
million "Free the Pike" plan to reimburse commuters' tolls and auto excise taxes
and a charitable-giving tax credit estimated to cost $164 million per year.
The charitable-giving credit has also been included in
the Senate's budget proposal. The House has offered a slower income tax rollback, which
could proceed only in a strong economy.
If all three tax cuts are approved, a three-year
recession could leave the state with a shortfall of $4.8 billion, or about 25 percent of
state spending, even after the state exhausts its "rainy day fund," which now
holds $1.4 billion.
Cellucci has said he opposes the "Free the
Pike" measure. But St. George said the combination of Cellucci's income-tax cut and
the charitable-giving measure would result in a shortfall of $3 billion, or 15 percent of
the state budget.
The study assumes that the state budget will continue
to grow at a rate of 3.3 percent. It also assumes a recession similar to the national
downturn of 1989 to 1992.
Tax-cut advocates noted yesterday that the study does
not take into account new economic activity that might be generated by cuts.
"The government is swimming in money,"
Melkonian said. "They can't spend it fast enough."
He also noted that Senate President Thomas F.
Birmingham, an opponent of sweeping tax cuts, recently said: "The sky will not fall
if the tax rollback passes. Massachusetts will not crumble into the ocean."
For more information on what
is the "nonpartisan"
Center on Budget and Policy Priorities
The State
Fiscal Analysis Initiative
