Limited Taxation
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CLT Update
Friday, February 26, 1999


Look quick! -- they're squandering away our tax cut hand over fist then warning that the sky's about to fall, there's not enough left to keep the promise and return the income tax rate to 5 percent," they're now trying to tell us. "Sorry folks, it's all gone and the good times are coming to an end anyway."

Isn't it strange how it's never a good time for a tax cut. When times are good they "invest" the overpayment while it's available; when times are bad they need the overpayment for "safety nets" and "unmet needs." Then they come back for more.

But note the big error by the reporter when she states: "If Cellucci's pitch to reduce the income tax rate in stages from 5.95 percent to 5 percent is successful, it could take $1.2 billion out of the coffers in just the first year..."

This is an inaccurate statement. Gov. Cellucci's plan would phase in his tax rate reduction over three years; when fully implemented, in the third year, it would reduce revenue by about $1.2 billion.

Regardless, when the pols took the money from us with their "temporary" rate increase, did anyone ask if you could afford it, or whether you'd rather if they phased it in gradually over a number of years?

And what's this "take $1.2 billion out of the coffers"? It shouldn't still be going into the coffers!

Chip Ford --

The Boston Globe
Metro | Region
Friday, February 25, 1999

Economists say state should temper spending
Possible slowdown could squeeze budget

By Tina Cassidy
Globe Staff

It was only a few months ago that Beacon Hill lawmakers, worried about financial crises overseas and a spate of local layoffs, were talking about belt-tightening, hoarding cash, and boosting the state's rainy day fund in anticipation of a recession that some seemed certain was just over the horizon.

But money kept pouring in. The political rhetoric about how many months the $1.2 billion emergency reserves could sustain the state began to fade. Agendas blossomed. Spending became the order of the day.

Governor Paul Cellucci produced the largest budget ever filed in Massachusetts history containing plans to lower the income tax rate and heap millions of dollars on pet projects and programs. Weeks later he said he wanted to spend another $300 million from a projected state surplus on one-time road and bridge improvements.

Even before Cellucci got the spending bug, Speaker Thomas M. Finneran unveiled an ambitious and expensive plan to offer public preschool and full-day kindergarten. And Senate President Thomas F. Birmingham cited the surging economy as a reason to sharply increase the minimum wage.

Despite the spending euphoria, economists are still nervous about the not-too-distant future. They say fewer jobs will be created. The financial service sector could be hit by a stock market crash. And consumer confidence may wane.

"One way or another, the economy is going to slow in '99," says Nicholas Perna, chief economist for Fleet Financial Group. "It doesn't have to go down the tubes like it did a decade ago.... A recession is unlikely and Massachusetts wouldn't do any worse than the rest of the country in terms of job loss and how long it stayed down, but the fact that we haven't had a slowdown yet means people should be more cautious, not less cautious."

While Cellucci's budget message for next year is filled with warnings about "profligate spending" and reminders "of what can happen when government gets caught up in the euphoria that prevails during a robust economy," his record $20.4 billion spending plan represents a 5 percent boost over fiscal 1999, giving across-the-board increases to dozens of agencies and programs.

The Massachusetts Taxpayers Foundation, a fiscal watchdog group, issued two reports last month, "Reaching the Breaking Point: The Commonwealth's Capital Dilemma" and "Budget '99: Containing the Euphoria," both flagging the potential for a crisis.

"We're still phasing in last year's tax cuts. The economy has already outperformed everyone's expectation for much longer than anyone anticipated. This clearly can't go on forever and there are some problems," said Michael Widmer, executive director of the taxpayers foundation.

He points to the so-called budget busters -- funding for the MBTA, health care for state employees, and Medicaid -- climbing to unforeseen levels.

"The budget is exploding," Widmer added. "At the same time, we have this huge problem of trying to identify enough capital resources to invest in a long list of important priorities while paying for the Central Artery."

Last week, Cellucci said he would pour much of the state's cash surplus into one-time highway and bridge projects, taking some of the pressure off the capital budget.

But such a spending luxury could be short-lived.

The state's infrastructure -- roads, buildings, bridges, pipes, etc. -- is among the oldest in the nation and could easily siphon millions out of the general fund for needed repairs over the next few years. If Cellucci's pitch to reduce the income tax rate in stages from 5.95 percent to 5 percent is successful, it could take $1.2 billion out of the coffers in just the first year [sic], possibly eliminating any surplus, thereby stretching the capital budget thinner.

Frederick Breimyer, chief economist at State Street Bank who believes the state's soaring times are in for a "soft landing," said it is evident that politicians are struggling to determine how to spend this year's cash without permanently elevating expectations.

"Growth is likely to diminish," Breimyer said. "The political establishment here is trying to find a middle line. I think they've done a reasonably good job. There has been a sense of prudence. And I think prudence is warranted."

However, cities and towns, which have received local aid increases each of the last eight years -- a 113 percent overall jump in spending since 1992 -- are already clamoring for more than the $4.5 billion Cellucci is offering for next year.

Holyoke Mayor Daniel Szostkiewicz says major local aid increases over the last four years have fueled a renaissance in his city, luring young families back who once would have shunned the shabby schools, which now have new books and are wired for the Internet.

"It was great. It was absolutely phenomenal," Szostkiewicz. "But when you go from multimillion dollar increases to level funding, it feels like you're just hitting a wall."

Of course, he is already talking about "working the Legislature" on getting more than the $60 million Holyoke is already promised.

All this frustrates the governor's office.

"You can't open the piggy bank for everyone all the time," said Cellucci spokeswoman Ilene Hoffer. "You have to impose controls. The most critical way to do that is to take money off the table by reducing the income tax."

Will the Legislature approve the rate cut?

Senate President Birmingham hopes not.

"I'm not Nostradamus," he said. "And I don't know if the governor has Nostradamus advising him. I don't know when the economy will slow down ... and for that reason I take a cautious approach."

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