Limited Taxation & Government
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CLT&G Update
Monday, August 3, 1998

Remember, you heard it first right here -- previews of coming attractions, "The Massachusetts Miracle, Part II," now confirmed by the "non-partisan and respected business community think-tank," the Massachusetts Taxpayers Foundation. And if the MTF say it's so, then of course so it is!

The next CLT&G Taxpayers' Poll probably should be a friendly wager to see who can come closest to the next fiscal meltdown and income tax increase: Will it be in 2000, 2001, 2002 ... or will we not even make it through 1999?

Chip Ford --

The Boston Herald
Tuesday, August 4, 1998
Lead Editorial:  Calm before the storm

The legislative session is over, the reps and senators are hitting the beach (or the campaign trail) and a big tax cut is on the way. What's not to like?

Enjoy it while you can. The budget now in place for the remaining 11 months of the fiscal year reflects an acceleration of growth in spending that could be laying the base for a return to the drunken-sailor 1980s.

The Massachusetts Taxpayers Foundation is right in its belief that "the sheer size of the new discretionary spending creates a pace of expansion that cannot be accommodated with the normal growth rate of state revenues, much less a future recession."

Treasurer Joe Malone has been calling attention to the fact that the 6.7 percent growth in spending far out-strips inflation, although he incorrectly faults his GOP rival, acting Gov. Paul Cellucci, rather than the overwhelming Democratic Legislature.

The foundation's point is that the growth is well above the 4.9 percent increase of the previous year, which in turn exceeded the 3.7 percent growth of fiscal year 1997 over 1996.

Some of the additional $1.2 billion in outlays was locked in. The sixth year of promised increases under the Education Reform Act of 1993 required $253 million.

When interest groups see percentage increases that large, their appetite is stimulated. And big percentage increases are everywhere. Just a few: nearly 10 percent for corrections, 10 percent for family and child support services, 21 percent more for day care, 22 percent for legal aid for the poor.

There is no limit to the conversion of wants into needs. The best tactic to check spending is to keep the money out of the hands of the spenders. The $770 million in tax cuts passed this year ought to be just the first installment.

The Boston Globe
Tuesday, August 4, 1998

Op-Ed: True tax relief slipped Legislature's net
By Robert Hedlund

The $700 million largest tax cut in the history of the Commonwealth is a huge fish story.

Ten years go, the tax rate was increased to 5.95 percent with a promise from then-Governor Dukakis and the Legislature that the rate would be rolled back once the state had repaid the bonds issued to get through the crisis. Since that debt was erased during the last fiscal year, I was the lead sponsor of a bill to make sure that promise about a "temporary" tax increase would be honored. Instead, the Legislature refused to act on the income tax reduction and the rate remains at 5.95 percent, one of the most burdensome in the nation.

It was also a decade ago that the stabilization -- or rainy day -- fund was created to set aside an appropriate sum of money from surplus state revenues to act as a hedge against fiscal emergencies. At the time, everybody anticipated this account would work much like a homeowner maintaining a savings account for use when a new roof or water heater was needed. Just to ensure this account wouldn't become abnormally large, it was capped at $585 million, an amount thought to be sufficient enough to fortify the state during an economic downturn. Once the account was fulled, any excess revenues were to revert automatically to the Taxpayer Reduction Fund so that a tax reduction would be triggered.

Well, it turns our that the pledge to return excess state revenue was also something of a fish story, the rainy day fund growing bigger with each telling and the taxpayer left with no catch to put on the dinner table. In April 1997 the ceiling on the rainy day fund was increased to $950 million over my vocal  opposition. In so doing, you and I lost at least $365 million that should have been used to offset the tax burden.

With the Massachusetts economy again doing well, the fund was expected to eclipse its cap once this year's state surplus had been certified. Rather than risk this money leaving bloated state coffers, the authors of this supposed largest tax cut in history decided to raise the bar once again by increasing the limit allowed in the rainy day fund to $1.425 billion. Changing the limit after the taxes have been collected eliminates an automatic one-time tax cut and nets the people of Massachusetts a shopping $457 million tax increase, while they will receive only $443 million through the doubling of the personal exemption created in the tax bill. In this instance, the bait is definitely bigger than the catch.

Thirty-two states set aside funds for fiscal emergencies, but with far fewer dollars than we set aside. The Massachusetts rainy day fund is second in size only to Alaska's, which is funded with oil revenues, not with taxpayer dollars. North Carolina ranks sixth on the list with a balance of $500 million while No. 10 Florida keeps about $410 million in reserve.

Another difference is that most other states maintaining a stabilization account have placed some safeguards on how and when the fund can be tapped, but Massachusetts has not established such ground rules. In fact, the Senate recently rejected even my modest request to require a simple public hearing whenever a proposal was under consideration to spend or add money to the rainy day fund. This sets it up as being little more than a slush fund legislators can use to hide money to spend when the coast is clear.

So when you are listening to the fish stories, think about the one that got away and remember that a golden opportunity for the true tax relief has unfortunately been avoided because of political expediency.

Robert Hedlund is a Republican state senator from Weymouth.

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