Citizens for Limited Taxation & Government
"The Commonwealth Activist Network"
18 Tremont Street #608 * Boston, MA 02108
Phone:(617) 248-0022 * E-Mail: cltg@cltg.org
Visit our web-page at: http://cltg.org
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***CLT&G Update ***
Thursday, March 12, 1998

Greetings activists and supporters:

Sorry this is a bit late getting out, but it was a busy day.

After watching yesterday’s House debate on it’s alleged "tax cut" I though it was important enough that you have personal access to the facts—not just take our word for it—and spent yesterday morning putting it together from the State House News Service’s detailed coverage so it can be posted on our web-site. (WARNING: "Detailed" means lengthy, which is why I’m not sending along. You will be able to find it as soon as the Powells get it posted for us, at: http://cltg.org.)

At 1:30 I participated in a news conference with Treasurer Joe Malone to call for the Legislature to repeal its 55% pay raise after breaking its part of the deal that gave it to them without Gov. Weld’s promised veto: Giving him his phase-out of the tax on long-term capital gains.

"First they broke their promise to us taxpayers that they would roll back the ‘temporary’ income tax increase; now they’re breaking their word on the deal that gained them their pay raise. It’s time to begin restoring honesty, integrity and honor to the Legislature to replace the mounting cynicism," I said.

[When asked by a reporter if this second show of support for "candidate" Malone meant that CLT&G had decided to endorse his candidacy for governor, I replied: "CLT&G remains neutral in that race, but we will always stand up for whoever is on the side of truth. I am here to defend the truth, and Joe Malone is telling it like it is."]

Following is Barbara’s report of the House debate, which she attended and observed from the House gallery.

Chip Ford—
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Barbara’s Report on "the biggest tax cut in state history!"

Well, that’s what they were calling it during the House debate. The actual amount is in dispute: the House leadership says the cut is $500 million, but Treasurer Joe Malone says it’s only $300 million. They’re both right: it’s $300 million this year, but if we wait until 2003 it’s finally $500 million. Big deal. Either way, it’s a whole lot less than any of the biggest tax increases we’ve seen.

And if this tax cut lasts as long as the 1994 capital gains tax lasted, it will be mostly repealed in 2002.

Good things about the House tax package:

1. The income tax rate reduction, while small (5.95 to 5.7 percent), is for tax year 1998, while Governor Cellucci’s and our petition’s bigger cut begins in 1999 at 5.6 percent.

2. The so-called "unearned income" rate cut from 12 to 5.7 percent beginning in 1999 is not as good as the COMFAST petition as long as our petition passes—COMFAST will take the "unearned income rate" to the same rate as earned income, which we take to 5 percent.

But it’s a bird in the hand and the business community will be tempted to take it. They are, not, however, as happy about the . . .

Bad thing about the House tax package: The increase in the long-term capital gains tax from its phase-down rates of 5 to 0 percent depending on how long the investment is held, to 5.7 percent beginning this year. We did warn them when the phase-out was passed disguised as a "tax cut for low income people" that they wouldn’t think it was so funny when the rate went back up again. I’m really glad we protested at the time the tax cut was done allegedly as a payoff for Gov. Weld signing the 55 percent payraise; now we can say I told you so, which is always satisfying. But it’s hard on innocent investors who planned around the phased-down rate. We like Joe Malone’s suggestion that since they reneged on their part of the bargain, the legislature should repeal its payraise.

Another chance to say we told you so. Last year’s increase in the stabilization fund that caused your personal exemption to be less for 1997 was apparently not enough. The House "tax cut" package increases the stabilization fund again, from 5 to 7.5 percent of state revenues. Secretary of Administration & Finance Charlie Baker tells me that this means the fund must contain $1.4 billion instead of $950 million before the excess goes into the tax reduction fund to be returned to the taxpayers with an increase in their personal exemption. He says Governor Cellucci will veto this tax increase.

So add it up, and subtract it down. A tax cut of $300-$500 million, a tax increase of $450 million this year alone with the stabilization fund increase, and another tax increase from the capital gains tax change that is estimated at $98 million this year and $208 million in 2003.

Looks like a net tax *increase* to me!

The House Republicans put up a good fight. If you watched it on television, you may have noted that the debate began 1 ½ hours late. That’s because the Democrat leadership were trying to find a response to Rep. Ron Gauch’s (R-Shrewsbury) challenge to the capital gains tax being part of the bill since it didn’t have a public hearing. They never found one so Finneran just ruled that Gauch was wrong without giving a reason and the members upheld "the ruling of the chair" as they always do, no matter how wrong the chair is.

We have a roll call on the attempt to remove the capital gains tax language, and another on the attempt to substitute Governor Cellucci’s bill (and our petition ) for the tiny earned income tax cut. All Republicans present voted for the taxpayer. Only a few Democrats joined them. The Governor says he will veto the tax increases (if the final bill is part of the budget, giving him the line-item veto) or return it with amendments to remove the tax hikes (if it stands alone). But it’s clear they have the votes, at least in the House, to override.

The battle now moves to the Senate, where Sen. Bob Hedlund could have some success in getting the stabilization fund increase removed from the bill.

CLT&G activist Anne Hilbert of Weymouth called to remind me that if this bill passes, those who are planning to transfer their IRA to a ROTH-IRA and pay the tax now, will be paying a 5.7% state capital gains tax instead of the present lower rate. Of course you still come out ahead, *IF* the government keeps its word on not taxing the ROTH money when you take it out. End of Barbara’s Report.

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You can e-mail CLT&G at --> cltg@cltg.org
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