Limited Taxation & Government
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CLT&G Update
Tuesday, July 7, 1998

Greetings activists and supporters:

We are no longer talking about a budget "surplus"; money left over after state expenses are paid. What we have before us is a staggering, unconscionable revenue excess -- money that's been and continues to be taken from the taxpayer above and beyond the cost of running the state government.

A tax cut comes from sharing in a budget surplus.

But when government finds that it is over-taxing excessively to the tune of over a billion dollars and mounting, there's something definitely wrong.

What is wrong with this picture is, the "temporary" tax spigot that was opened to pay off the billion dollar fiscal crisis bonds is stuck open even after the crisis has ended and the bonds are paid.

These hundreds upon hundreds of millions of dollars of taxpayers' hard-earned money that're pouring in are not "surplus" revenue -- this is EXCESS TAXATION above what is needed to fund the state budget . . . even a $19.5 billion state budget!

Chip Ford --

Citizens for Limited Taxation & Government
July 7, 1998

Contact: Barbara Anderson

Re: Our money, the state surplus; and Senator Birmingham's irrational analogy.

We would like to point out that the reason there is a budget surplus is that the commonwealth is still collecting the "temporary" income tax increase.

The amount of the surplus is slightly more than the amount collected from the additional .95 percent, on top of the long-standing 5 percent rate, that was passed as a "temporary" emergency tax increase in 1989-90.

Rather than simply admitting that it is collecting more than it should, Beacon Hill debates, a) whether or not the money should be spent on government, or "spent" in a tax cut and, b) if a tax cut, how best to distribute the surplus money.

Senate President Tom Birmingham has stated that if a business had a record-breaking year, all the unanticipated profits would not be returned to the shareholders. This is a silly analogy. The money that makes up the unanticipated profits was not taken directly from the shareholders in the
first place.

A proper analogy would have the business forcing customers to buy an overpriced product, then admit it had overcharged. A proper remedy would have the business return the money directly to the abused consumer, then adjust its price so that the customer would not be overcharged again.

Instead, in the case of Birmingham's state, the business continues to overcharge while passing out a portion of the over-collected revenues to ... whomever, with no concern over who was actually overcharged by how much.

The Legislature should immediately cut the wage & salary income tax rate to 5 percent, as it promised it would do in 1989, and then do its best to return this year's surplus to the people who overpaid it.

Barbara Anderson

The Boston Globe
Tuesday, July 7, 1998

State reports bonanza of nearly $1b
Cellucci pushes bigger tax cut

By Tina Cassidy and Frank Phillips
Globe Staff

Massachusetts collected almost $1 billion more than expected from taxpayers in the last 12 months as the red-hot economy helped push state revenues to record levels.

The state's surprising windfall, announced yesterday by Acting Governor Paul Cellucci, immediately reopened debate over whether the state should authorize a massive election-year tax cut.

Closing the books on fiscal 1998, the state said revenues in June surged to a record $1.646 billion, 14 percent more than in June 1997 and $300 million more than had been expected for this year. The figures pushed total revenues for the year to $14 billion.

Pouncing on the unexpected fiscal news, Cellucci said he would nearly double his previous $350 million one-time tax refund plan that he unveiled in May.

"I think we should be cutting taxes much more," said Cellucci, who would need legislative approval for his plan before Dec. 1. "Shame on them if they can't get it done."

If boosted to $650 million, Cellucci's tax refund plan would provide refunds on 1998 tax returns ranging from $177 for a single filer to $353 for a family of four.

The latest revenue figures come as House and Senate leaders work on a fiscal 1999 budget that will also include a $500 million Democratic tax cut plan.

Cellucci is pushing a $1.2 billion rollback of the state income tax from 5.95 to 5 percent over four years. But the Democratic Legislature has rejected such a large cut. However, if the Legislature's $500 million tax cut plan is combined with Cellucci's new $650 million refund proposal, the total would come close to Cellucci's original proposal.

But much of the political debate this year has focused on what to do with the state's record surplus created by the booming Massachusetts economy. As expected, Cellucci's call to nearly double his tax refund ran into sharp criticism from Democratic leaders who said it is too costly and the money should be used to pay for pressing state needs.

His Republican gubernatorial primary opponent, state Treasurer Joseph D. Malone, attacked Cellucci for failing to give back the entire surplus.

"All of the surplus belongs back in the hands of the taxpayers," Malone said. "Over the last two years under Paul Cellucci, we've had a combined $2.1 billion surplus and less than one-third is going back to the people of Massachusetts. That's unacceptable."

Senate President Thomas F. Birmingham said he would support returning several hundred million dollars of the surplus as a tax refund, but that some of the money should be used for programs and some put into the state's rainy day fund.

The Senate leader, noting the recent furor over teacher test scores, also proposed a one-time expenditure to establish an endowment for signing bonuses for graduate students interested in becoming teachers.

"If a business had a record-breaking-profit year, all of those profits would not be returned to the shareholders," said Birmingham. "A rational business would save for a rainy day and also invest."

House Speaker Thomas M. Finneran said the revenue should go to expanding the rainy day fund and for capital improvements. As for one-time tax refunds, he said only that the House would "consider it."

"I don't think it's inappropriate, but I think it might be out of balance to suggest that the entire surplus go back to taxpayers when you have these other, if not equally compelling at least legitimate, uses of the money, each of which inures directly to the benefit of the taxpayers," Finneran said.

The state's rainy day fund is nearly filled to the brim of its $950 million limit. Any extra money legislators agree to add to the fund would trigger an automatic rebate to taxpayers.

Charles D. Baker, secretary of administration and finance, said April, May, and June are typically the best months for tax collection. This year, they smashed all records, producing $500 million more than expected. The money poured in from just about every sector, he said, including sales and withholding taxes, as well as final tax payments.

Meanwhile, House and Senate budget negotiators are deadlocked over the fiscal 1999 state budget, forcing them to pass an interim spending plan allowing the state to pay its bills through July 18.

Some lawmakers said privately that a major stumbling block in those discussions has been determining the size of a tax break, but Birmingham downplayed the differences. He said there is a "wide range of issues to be resolved."

House Ways and Means chairman Paul Haley has said that both sides agreed to leave room for a $500 million tax cut, which would allow for reducing the earned income tax to as low as 5.7 percent from 5.95 or for adopting some of the Senate's income tax credit initiatives.

Malone has called on Cellucci to veto such a plan, saying it does not go far enough. But Cellucci said he is willing to sign the Democratic tax cut and continue to push for more.

"What Paul Cellucci should have said today is that he will veto any budget that does not contain the full tax rollback to 5 percent," Malone said in a statement.

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