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CLT&G Update
Friday, July 31, 1998

The New York Times
July 31, 1998

Coffers Full, Massachusetts Slashes Taxes


BOSTON -- How is this as a measure of the monetary euphoria sweeping statehouses across the country lately? Even here, in the state derided not so long ago as Taxachusetts, Acting Gov. Argeo Paul Cellucci signed a $19.5 billion budget on Thursday that incorporated part of a brand new, multiyear, $770 million tax cut, the largest in the state's history.

And one of Acting Governor Cellucci's biggest end-of-session fights with the Democrat-dominated legislature is over whether its leadership's proposal for an additional one-time $200 million tax cut is enough. He is pushing for $650 million more in tax cuts, so that most of the state's nearly $1.1 billion surplus from the 1998 fiscal year will go right back to taxpayers.

"Any attempt to spend that surplus, I intend to veto," he said this afternoon after signing the budget for the 1999 fiscal year, "because I want that money to go to tax relief."

Truth is, the sniping old label of Taxachusetts (and occasional accompanying references to The Pay State instead of The Bay State) have been outdated for years, made obsolete mainly by the fiscal discipline introduced by former Gov. William F. Weld in the early 1990's.

Once the heaviest-taxing state in the country, Massachusetts now imposes the eighth-highest tax burden on its residents, said Barbara Anderson, probably the state's best-known anti-tax advocate. Its income tax still rivals New York's for the top position, though, Anderson said, so "we could still be Taxachusetts on the income tax."

But like many other states in these hearty economic times and this dawning election season, the state's revenue windfalls are turning into stunning tax cuts as rainy-day funds fill to the brim and ambitious new spending remains widely unpopular for almost everything but education. According to a recent survey by the National Conference of State Legislatures, 19 states cut taxes in the fiscal year beginning July 1, as budget surpluses reached new highs.

Under the tax-cut plan that the Republican Acting Governor signed into law last week, taxpayers' personal exemption on earned income is doubled, and the "investment income tax" -- tax paid on income from interest and investments -- is reduced to the same level as earned income, 5.95 percent, from 12 percent.

So rosy is the Massachusetts tax picture, and so quiescent the state's once-overburdened taxpayers, that Anderson and her Coalition [sic] for Limited Taxation and Government -- the group behind the landmark 1980 voter-approved cut in the state property tax known as Proposition 2 -- raised the question recently of whether they should disband.

Their membership had dropped, and they had just suffered a most painful defeat, failing by just a few signatures to gather the support needed for a ballot initiative on lowering the state income tax to 5 percent from its current level of almost 6 percent.

Announcement of the coalition's possible imminent dissolution brought a rush of support, Anderson said on Thursday, and its future remains unclear. It moved out of its downtown Boston office on Wednesday, she said, but will probably shift to more on-line communicating and less of the Beacon Hill lobbying that had come to seem futile.

A McCormack Institute-University of Massachusetts poll in January found that when offered the option of returning the budget surplus to taxpayers or paying off state debt, only 40 percent supported returning the money to taxpayers, while 31 percent wanted to pay off state debt and 11 percent said both.

Opinions remain even further divided; some argue the tax cuts are simply going too far.

"You could be looking at over a billion dollars in tax cuts," said James St. George, executive director of the nonprofit Tax Equity Alliance of Massachusetts. "It's just too large. Whenever the economy slows down, we're going to find that that billion dollar tax cut creates big holes in the budget."

St. George attributed the cuts in part to "a fair amount of election-year politics."

Anderson, on the other hand, found the current tax cuts unimpressive, falling well short of the fundamental change she believes is needed and allowing a continued rise in spending that she expects to keep rising until the next fiscal crisis.

"We're all supposed to be grateful because they're letting us keep some of our own money," she said.

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