The Boston Herald
Sunday, April 7, 2002
A Boston Herald editorial
Unmentioned costs of tax increases ...
All the politicians and interest groups in Massachusetts
seeking tax increases as a solution to the state's budget shortfall are ignoring - or at least not talking about - the
costs to the state economy of an increased tax burden. A study from the Beacon Hill Institute at Suffolk
University shows the costs in jobs to be substantial - forbiddingly so.
The institute eight years ago developed a mathematical model
of the state economy that has the rare virtue of being able to estimate the response of consumers and producers to changes
in taxation. The model has been used in 15 states, and now has been applied to four
proposals floating around Beacon Hill.
The most often mentioned tax increase is the freezing of the
income tax rate at 5.3 percent instead of dropping it to 5 percent (make no mistake, that's an increase) next January as
the voters ordered three years ago. The institute's model estimates this would cost
Massachusetts 31,742 jobs in calendar year 2003, rising to more than 32,000 in subsequent
years.
What does this mean? It is about 1 percent of all the jobs
in the state - but a big increase in total unemployment, about 21 percent. In other words, we'd be generating a new little
recession all our own, pushing the unemployment rate from 4.4 percent to 5.3 percent.
This is not just guessing. Applying the model historically,
the authors estimate the income tax rate increases of 1988-1991 enacted in a desperate attempt to keep state spending flowing
cost 117,000 of the 267,000 jobs lost in that period.
The often mentioned alternatives or supplements to a rate
freeze are no better and usually worse. If the rate were bumped back up to 5.6 percent, 63,185 jobs would be lost in 2003
- equivalent to a 41 percent increase in unemployed, and more than the number of jobs lost
since the January 2001 peak. Cutting the personal exemption in half would cost 39,004 jobs
next year.
And raising the average capital gains tax rate by a quarter
(from 2.6 percent to 3.25 percent) in an attempt to bring in another $80 million a year (a small portion of what is needed
to close the budget gap) would reduce investment in Massachusetts (the source of future jobs)
so much that the total amount of capital employed in the state would fall by
about 1 percent (that is, by more than $900 million). This would be at least twice as great as the reduction
produced by any of the other measures. It's a way to produce economic anemia.
As the liberals and human services advocates never tire of
telling us, unemployment produces many more costs than those that show up in the tax collection ledgers - broken marriages,
misbehaving children and the general loss of hope being just a few.
Having grown up in much-battered North Adams, acting Gov.
Jane Swift knows from up close and personal experience the costs of job destruction. Her budget proposals would
avoid this burden, and are to be much preferred over the knee-jerk spending-at-all-costs
responses of the tax raisers.
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The Boston Herald
Sunday, April 7, 2002
A Boston Herald editorial
... And unintended results
And while we're on the subject of tax increases and
unintended consequences, let us share with you a recent story out of Buffalo, N.Y.
The Oneida Indian Nation, which has been conducting a
thriving Internet-based business in cigarette sales, has just expanded, offering similar bargains via a computer-assisted
kiosk in a chain of local stores.
The tribe, which also operates a casino, has been doing a
brisk business in cigarettes because it can sell them tax free. The Oneidas decided to expand their business the day
before the state tax on cigarettes was to rise from 39 cents a pack to the
nation's highest tax - $1.50 a pack. The savings on a tax-free carton can be as high as $20.
New York's attorney general will surely attempt to stop the
in-store kiosks one way or another. One argument being advanced is that the kiosks could facilitate cigarette sales to
minors. Another approach would simply assert that retail stores are simply not part of the
Oneida Nation.
However this little drama plays out in New York, the broader
lesson is clear: Increase a tax enough and people will go to ever greater lengths to avoid paying it. While the tax on
cigarettes is one of those that few nonsmokers or health advocates would cry salty tears over
having increased, it could end up being a largely fruitless effort, hurting the bargain
local merchants far more than it would smokers.
How difficult would it be to head over the New Hampshire
line, or for some enterprising tribe to enter the cigarette business here? And then there are always the cartons that fall
off the backs of trucks coming from low-tax Southern states.
Hiking this "sin" tax is tempting, but foolish.
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The MetroWest Daily News
Sunday, April 7, 2002
Editorial
State pension gravy train
The law, enacted decades ago, is offensive enough to those
who think public office should be about public service, not self-enrichment. It allows state employees who are fired or
elected officials turned out of office to collect their pensions early. Why should the taxpayers be
rewarding those whose performance has been deemed inadequate?
But if this legal giveaway is bad, twisting the truth to
give early pensions to those who left public service on their own volition is worse. That, according to a study by
CommonWealth magazine, is what has been happening with disturbing frequency.
Since 1990, more than 1,000 state employees and officials
have taken advantage of the law, which provides early pensions to public employees with at least 20 years of service.
CommonWealth found that a third of those who took advantage of the program were "fired"
within a year of passing the 20-year mark, and 10 percent of those cashed in within a month
of their 20th anniversary. Either their terminations were an ironic coincidence or an
wink-and-a-nod grab for the easy cash.
In addition, at least four ex-state legislators, including
former House majority leader Richard Voke, have been granted early pension benefits even though they left office
voluntarily. Voke, who retired at 50 instead of 55, got an extra $125,000 in pension payments through
the ruse.
Even when the law is strictly followed, the results can be
disturbing. With 30 years service, former Gov. Paul Cellucci qualified for the early pension even though he left office on
his own. But his 30 years of service includes six years of service on the Hudson Board of
Selectmen, a part-time job that paid just $1,500 a year. It's paying off now, however:
Cellucci is collecting $42,573 a year in pension benefits in addition to
his $130,000 salary as ambassador to Canada.
This appears to be a bipartisan scam. The early pensions
have been routinely approved by the responsible board, whether chaired by Republican Joe Malone when he was treasurer,
or current Democratic Treasurer Shannon O'Brien.
Generous pensions for political appointees and washed-out
politicians has been a dirty secret on Beacon Hill for years. At a time when state leaders are talking about cutting services
and raising taxes to close a gaping budget gap, they need to start by shutting down sweetheart
deals that undermine the credibility of state government. This isn't the first time in
recent months we've been reminded of the patronage culture that infects Beacon Hill, but we're still
waiting for one of the candidates for governor to make a convincing case he or she
will do something about it.
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