To all CLT members and activist,
Merry Christmas, Happy Holidays,
and a good start on a Prosperous New Year!

A little something in everyone's stocking for 2001
(and maybe some coal for Grinch Birmingham)

State House News Service
ADVANCES (Week of Dec. 25, 2000)

INCOME TAX CUT: On Monday, Jan. 1 the first phase of that tax cut takes effect, with the rate falling from 5.85 to 5.6 percent.

Gov. Paul Cellucci, who spent years fighting for it, says the state will be in better fiscal shape as a result of the drop in the tax rate.

The state's top senator, however, worries that some important programs will suffer. "I'm not going to embrace the premise that we're necessarily on the doorstep of a recession," Senate President Thomas Birmingham said last week. "But Question 4 could potentially compromise our ability to continue our efforts to improve education, to expand health care. If the economy stays strong, I'm sure we can muddle through. If not, all bets are off. If the economy is weak and we've lost over a billion dollars in revenue, that has arithmetic implications for what we can do in the areas that we have traditionally been very generous, particularly education and health care."

SERIES OF TAX CUTS KICKING IN: The income tax cut is the big one, but there are several moderate and smaller tax cuts that are about to take effect.

The House and Senate agreed earlier this year to freeze the capital gains tax rate at 2 percent even though a 1994 law called for it to be phased out completely. Gov. Cellucci vetoed the freeze and lawmakers let his veto stand.

That means that on Jan. 1, there will no longer be a state capital gains tax on investment profits held for at least five years. The capital gains deal was forged, after heavy lobbying by business groups, between former Democratic House Speaker Charles Flaherty and former GOP Gov. William Weld in 1994.

MORE TAX CUTS KICKING IN: The last phase of the capital gains tax reduction is worth $100 million in fiscal 2001, according to the Department of Revenue. And its further reduction is one of several delayed tax cuts, collectively valued at $350 million in fiscal '01, that are either kicking in with the new year or will be implemented during 2001.

The fiscal 2000 budget, approved in late 1999, included about $430 million in tax cuts, with about $300 million of those cuts delayed until fiscal 2001, which we're half way through, and fiscal 2002, which lawmakers are starting to budget for.

A tax credit intended to prompt developers to build affordable housing takes effect Monday, Jan. 1.

The so-called circuit breaker property tax cut aimed at senior citizens and sponsored by Senate President Thomas Birmingham also goes into effect with the new year. Once fully implemented in 2003, that tax cut will be worth $48.5 million.

Another tax break about to hit the law books allows charitable donors to fully deduct their contributions. That voter-approved tax cut will draw $80 million away from the state's coffers in fiscal 2001.

Other tax breaks hitting the books on Jan. 1:

increase the deduction for dependents under 12 from $1,200 to $2,400 ($15 million);

increase the deduction for child care expenses from $2,400 to $3,600; expand the student loan deduction ($3 million);

increase the rental deduction from $2,500 to $3,000;

and institute a $1 million tax break designed to make adoptions less expensive.

"These are small things but they all add up," said state revenue commissioner Frederick Laskey. Massachusetts did better than other states during the multi-year economic boom because of aggressive tax cuts, according to Laskey, who says that trend should continue. "These latest tax cuts that are hitting in are just a continuation of that ongoing, very strategic and very clear decision to eliminate the Taxachusetts nickname and make Massachusetts more competitive," Laskey said. "If we are indeed heating for a recession -- there's a great debate out there -- we will be more competitive and better positioned."

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LEGISLATIVE PAY RAISE: Administration officials this week or next are set to report on the size of the Constitutionally required pay raise due to legislators come Jan. 1. Rank-and-file lawmakers currently earn $46,410. Committee chairs and legislative leaders earn more. The hike of 5-6 percent is based on the state of the economy; legislators could theoretically see their pay cut if the economy tanks.

The 1998 constitutional amendment was passed following public outrage over action in late 1994 when the House and Senate hiked their base pay by 55 percent, from $30,000 to $46,410.

That outcry continued into 1996, when Citizens for Limited Taxation and other groups launched an unsuccessful bid to rescind the raises and control other legislative perks.

In 1996, newly installed Senate President Thomas Birmingham and House Speaker Thomas Finneran proposed the constitutional amendment, arguing that because lawmakers are required to set their own pay, any raise is always controversial. Legislators have rejected proposals to tie increases in the minimum wage to a similar standard.

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