CLT Update
Thursday, January 18, 2001

Beware the Law of Diminishing Returns

"The only way to expand in this magnitude is through this kind of revenue stream," [state Sen. Mark] Montigny said. "This is the only answer. If someone has a better answer, I'm waiting for it."

Montigny is sponsoring a bill in this legislative session that would increase the tax to pay for a variety of expanded health care programs.

The Boston Globe
Jan. 18, 2001

If you're a Bacon Hill spendaholic, it must be tough being weaned off the bottle; and if you're used to splurging on every pet project and new boondoggle to expand government that comes down the pike, it's difficult to stop even when the taxpayers have cut back your once-limitless cash flow.

Look out smokers ... they're coming back after you! You're again about to be stuck-up and picked clean as the most politically incorrect, vulnerable, and easily-tapped cash cow!

Beware the Law of Diminishing Returns. Someone once observed that if you want to increase certain behavior you subsidize it, and if you want to decrease that behavior you tax it.

But any intelligent person would also recognize that as you increase that tax and decrease that behavior, you certainly cannot depend on that revenue to continue supporting another expensive entitlement program forever!

Once a new entitlement program is locked in place, who will stand up to cutting it back, "hurting the most vulnerable," even if that means tapping into the general fund for that additional $150 million ... or increasing taxes in another area to cover the inevitable shortfall?

And they dare to call the tobacco industry "greedy" and "unscrupulous"? The pols make far more off a pack of cigarettes than the industry does, and they keep squeezing for more! What would Big Government ever do without Big Tobacco?

Chip Ford

The Boston Globe
Thursday, January 18, 2001

50-cent hike in cigarette tax eyed
Money would go to health care

By Rick Klein
Globe Staff

With health care needs mounting and state revenues shrinking, the chairman of the Senate Ways and Means Committee is backing a measure that would boost the cigarette tax 50 cents, giving Massachusetts the highest per-pack tax in the nation.

Senator Mark C. Montigny, a New Bedford Democrat, said yesterday that an increase in tobacco excise taxes represents the state's best chance to expand health coverage for residents who lack insurance. The Ways and Means Committee has primary responsibility for drafting the state budget.

"The only way to expand in this magnitude is through this kind of revenue stream," Montigny said. "This is the only answer. If someone has a better answer, I'm waiting for it."

Montigny is sponsoring a bill in this legislative session that would increase the tax to pay for a variety of expanded health care programs. If the taxes are passed on to smokers in the fall, they would pay $1.26 per pack in state taxes, in addition to federal taxes that are scheduled to rise from 34 cents to 39 cents next year.

With health care joining education as a top priority on Beacon Hill - and state leaders worried about a fiscal crunch -- the bill is likely to get serious consideration. But while Governor Paul Cellucci stressed health care in his State of the State address last night and in other public statements, the governor is opposed to additional tobacco taxes, saying they hurt working people.

"The people who will be paying the taxes are average working men and women who smoke," said John Birtwell, a spokesman for Cellucci.

New York leads the nation in tobacco taxes, charging $1.11 a pack under a law passed last year. Massachusetts' 76 cents per pack tax ranks seventh in the nation.

The tax hike's backers say they expect strong opposition, especially given the deep pockets of tobacco companies. But the regional group that is pushing for 50-cent increases, Alliance for a Healthy New England, has already signed up Montigny and several other influential lawmakers in Massachusetts.

They include Representative John H. Rogers, a Norwood Democrat who is House chairman of the Taxation Committee and a leading candidate for the vacant chairmanship of the House Ways and Means Committee. Rogers said that with tax cuts scheduled to divert money from state coffers over the next few years, some money from a cigarette tax increase should be used to aid ailing community hospitals.

Another House cosponsor, Democratic Representative Rachel Kaprielian of Watertown, said she is optimistic about the bill's chances for success. An increase of 25 cents per pack, passed in 1996, is widely considered successful in bringing health coverage to hundreds of thousands of people, many of them children, she said.

The alliance estimates that the tax increase would bring the state about $150 million in additional revenue per year. Much of that money could be spent on programs that qualify the state for federal matching funds, meaning an even greater monetary impact, said Marcia Hams, deputy director for programs at Health Care for All, one of the advocacy groups in the alliance.

That could mean providing health care to an extra 75,000 Massachusetts residents, including many working adults who don't qualify for current state programs, Montigny said. And none of this accounts for the public health benefits that would result from further discouraging young people from smoking, he said.

Associated Press
Thursday, January 18, 2001

Governor touts 'fiscal discipline,'
but opponents see cuts looming

By Steve Leblanc

WORCESTER, Mass. (AP) Gov. Paul Cellucci's State of the State address was packed with pledges to control spending, but one group was conspicuous for its absence from the speech: those who will be hurt by the governor's "fiscal discipline."

Cellucci said the state's economy has enjoyed the longest period of growth in history thanks to 10 years of fiscal discipline, but he acknowledged that the economy is cooling.

In fact, state revenues have fallen in recent months, after years of growth. Cellucci's state income tax cut, approved in November, will cut revenues an additional $1.2 billion per year by 2003, when it is fully implemented.

State Rep. Jarret Barrios, D-Cambridge, noted that Cellucci mentioned no cuts in services in his speech.

"You don't lobby for and pass a tax cut that means a 5 percent decrease in revenues and then turn around and promise we're not going to cut anything," Barrios said. "It will be easier to find a hen's tooth than a social program that won't be cut."

But Cellucci said the state was well-prepared for any downturn because its taxes are lower, it has billions of dollars in surpluses and "rainy day" funds, and its economy has diversified beyond a handful of large employers.

Cellucci used his annual State of the State address on Wednesday to highlight the economic success of Worcester, the state's second largest city, where unemployment has fallen from 9 percent to 2 percent in the past decade.

The success has spread across the state, beyond the strength even of the nation's economy, he said.

"Fiscal discipline has been the centerpiece of a strategy that has served the people of Massachusetts well, and it will be the cornerstone of our strategy for the future," he said.

Cellucci, who became lieutenant governor in 1991 and governor in 1997, said the past decade was a departure from the unsustainable spending hikes, tax increases and cuts in services in the 1980s.

Taxes have been cut 41 times in the past decade, Cellucci said including a personal income tax cut approved in November and he pledged to further rein in spending by filing legislation that would cap the rate of state spending, although he didn't say by how much.

But the governor has already said his budget proposal to be unveiled next week will be 5 percent larger than last year's $21 billion budget.

In fact, the state budget has increased by half from just under $14 billion in 1991 since Cellucci joined the administration of former Gov. William F. Weld.

Cellucci also said he would file legislation to require the state to use excess revenue to reduce the debt, though he didn't say how it would be achieved.

Despite the talk of fiscal discipline, Cellucci called for increased spending in several areas, including an additional $200 million per year over five years to public schools for special education, computer technology, and other programs. The state spent about $3.9 billion on public education this year alone.

He also called for more spending on community health care providers, including long-term providers who help seniors remain in their homes.

Cellucci said he planned to file legislation that would help hospitals that provide free care to uninsured patients.

Senate President Thomas F. Birmingham said the governor's lofty promises will likely differ sharply from the harsh realities of his budget, which will be announced Jan. 24.

"This administration has very different people writing its State of the State speeches as writing its budgets," said Birmingham, D-Chelsea.

It was the second year in a row that Cellucci gave his State of the State address outside the Statehouse the first governor in recent memory to do so.

Cellucci, a Republican whose party has been marginalized on Beacon Hill by an overwhelmingly Democratic Legislature, spoke last year in Lowell.

Cellucci also restated his support for the controversial MCAS exam, and said he would file legislation that would give communities state money to pay for more housing.

The MetroWest Daily News
Wednesday, January 17, 2001

Cellucci pushes new tax cut plan
by David B. Caruso
News Staff Writer

BOSTON -- With nearly $2 billion in tax cuts under his belt, Gov. Paul Cellucci appears to have already solidified his reputation as an anti-tax crusader.

And on the eve of his second State of the State address, Cellucci was at it again yesterday, suggesting Massachusetts businesses could benefit from a further 10 percent cut in unemployment taxes.

But with the economy cooling off, some Democrats are looking for a new signal from the governor this year -- something that sounds a lot like: Read my lips. No new tax cuts.

"What I would like to hear from him, more than anything, is that there is a limit to how much tax-cutting we can do," said Sen. David Magnani, D-Framingham.

The economic boom that has allowed the state to cut almost 40 different taxes in the last 10 years, may be just about over.

An income tax cut passed last year will drain $1.4 billion from state coffers over the next two years.

The state may find it tough to balance the budget if it plunges ahead with any further broad tax-cutting initiatives, Magnani warned.

"I think there are going to be opportunities for us to be more judicious in the way we cut taxes in the future. I am talking about very, very small tax cuts. Highly targeted," Magnani said.

"Frankly the approach that the governor has favored -- big tax cuts across the board -- is just not possible anymore. We have to think about cutting taxes with a scalpel, rather than with a meat cleaver," he said.

A "no new tax cuts" approach, however, is not likely to make its way into the Cellucci repertoire.

In his successful fight for a 15 percent reduction in the state income tax last year, Cellucci argued that cutting taxes is one of the best ways to stimulate investment and keep the economy humming.

With an economic slowdown apparently under way, he appears to be in no mood to back down.

Cellucci yesterday said he would renew his push for a cut in the taxes businesses pay into the unemployment insurance trust fund -- the huge rainy day cash pool the state uses to pay unemployment claims when workers lose their jobs.

With the jobless rate in Massachusetts near an all-time low, the fund has grown to a record $2 billion -- enough to pay wages to unemployed workers for 18 months at three times the current joblessness rate.

But to create that huge safety net, Massachusetts has levied some of the highest business taxes in the nation.

The average company now pays around $316 per employee into the fund each year. Cellucci's tax cut would knock that down to $278. The national average is about $169, administration aides said.

A cut in those rates, Cellucci explained, "would help businesses remain competitive in a period of uncertainty."

"We've got plenty of money in that trust fund," he said.

Michael Widmer, executive director of the nonpartisan Massachusetts Taxpayers Foundation, said the trust fund may be one of the last places Cellucci can turn to cut taxes without damaging the state's fiscal health.

The state is already slated to lose approximately $1.8 billion in revenue over the next three years, thanks to tax cuts already on the books but not yet in effect.

At the same time, the state's economy, which had been growing at a rate of 12 percent a year, has cooled off to around 3 percent growth in the last nine months.

"That combination is going to put enormous fiscal pressure on the state budget," Widmer said.

"There is no more appetite, anywhere, for additional tax cuts. I think we have seen an end to any sort of broad tax cuts for a long time," he said.

A cut in unemployment taxes, though, puts less pressure on the state because revenue from the tax goes into a special trust fund, and not into the general state budget.

"If you are looking for a tax to cut, there probably is some room there," said Widmer. "You can almost certainly lower that tax without undermining the future."

The cut, though, is not without opponents.

Sara Nathan, a spokesman for the AFL-CIO, noted that the state's unemployment insurance fund went bankrupt during the recession years of the late 1980s. Cutting it back during good times, she said, would be a mistake.

"Obviously, the unemployment insurance fund is there for when people need it most, for people who lose their jobs and are laid off through no fault of their own," she said.

Labor groups also had their eye on the $2 billion fund for a proposal to let pregnant women and new mothers collect unemployment benefits during the unpaid segments of their maternity leave.

"It seems to us that if there is even going to be a discussion about status of the fund, that discussion has to include paid family leave," Nathan said.

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