Limited Taxation
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CLT Update
Friday, April 16, 1999

State House News Service
April 15, 1999

Birmingham, Finneran, Cellucci
Stake Out Tax Cut Positions

APRIL 15, 1999 ... TH ... House Speaker Thomas Finneran today proposed cutting the state's income tax rate to 5.75 percent starting next January, arguing the reduction is a balanced approach that helps both residents and the commonwealth meet their needs.

At a press conference attended by about 30 House Democrats, Finneran rejected Gov. Paul Cellucci's call to cut the rate from the current 5.95 percent to 5 percent over the next three years. The speaker opposed Cellucci's plan because it doesn't give lawmakers the leeway to halt the cuts i  the economy goes south. Senate President Thomas Birmingham opposed both plans.

"Our goal is to reduce costs as aggressively and as prudently as possible while maintaining the essential priorities and commitments we have adopted for the forward progress of Massachusett  families," Finneran said. "We choose not to commit ourselves to a rigid schedule of additional ta  cuts without any rational basis for confidently or safely predicting the strength or weakness of our economy over the next four to five years."

Finneran said Cellucci's plan is somewhat reckless. "The governor just says 'follow me down the slope.' It's a pell-mell approach."

Finneran's plan - approved by the Taxation Committee this afternoon and to likely to see House approval in two weeks - cuts taxes by $135 million next year and then $275 million every year afterward when fully phased in. It would save the average family $135 a year.

Once fully implemented, Cellucci's plan would save taxpayers $1.4 billion annually, although it would cost about the same as Finneran's plan in the first year. Finneran said his plan gives lawmakers flexibility to respond to future economic changes.

Senate President Thomas Birmingham said his colleagues would likely reject both plans as too expensive. He said the Senate has "higher priorities."

"I'm not saying it's dead on arrival, but I'm highly doubtful the Senate will do an income tax reduction on the order of the governor or the speaker," Birmingham said at his own press conference later in the day. "I think it is highly doubtful the Senate will do an income tax cut because we have higher priorities" like education, health care and public safety, he said.

Birmingham said he has already proposed a tax cut for the year, a $50 million initiative targeting relief to elderly homeowners.

Hanging over lawmakers' heads today is the "Sword of Damocles," as Birmingham put it: a promise by Cellucci to take his rollback effort to the ballot. If approved by voters, the petition would increase any tax cuts approved by lawmakers. Many observers, including Birmingham, believe voters would likely approve the cut to 5 percent if given the chance.

But the president said he's having a hard time reconciling that belief with his observations.

"I can go from New Year's Day to New Year's Eve and I hear about education, health care ... a host of issues that are more important to ordinary people than a tax cut," Birmingham said. "It's not a question of right or wrong. It's a question of values."

Pre-empting such arguments at a morning press conference, Cellucci said the tax cut would actually generate more revenue, invoking the classic supply-side economics argument that consumers will spend the money returned with a tax cut. That spending would then grow the economy and lead to more tax dollars flowing back into the state's coffers, Cellucci said.

He added lawmakers should return the 5.95 percent rate to its pre-fiscal crisis level of 5 percent because they promised the increase would only last until the state emerged from the recession of the late 1980s and early 1990s.

The governor used today's tax-filing deadline to point out that the state's revenues are still strong even after last year's $1 billion tax cut. More than 80 percent of people filing taxes will get a refund this year, with an average savings of $420 per filer, he said.

Urged on by Cellucci, Birmingham and Finneran last year agreed to cut taxes more than $1 billion through a doubling of the personal exemption and a reduction in the unearned income tax cut. Cellucci said this year's expected budget surplus of $400 million shows that tax cuts stimulate the economy.

"They said you can't cut taxes and improve public schools," Cellucci said. "We've proven them wrong. And you know what? Tax revenue paid to government has not gone down one year. How many times do we have to demonstrate it before they get it?"

Cellucci promised to take his effort to the voters even if legislators approve smaller tax cuts than he wants, as was the case last year.

Finneran said House members aren't "reflexively" opposed to tax cuts, but said the sentiments of representatives who support the cut to 5.75 percent reflect the views of most working and middle-class state residents. Finneran and Birmingham refused to speculate on what would happen to the state's finances if voters approved the rollback to 5 percent.

"I think the people of Massachusetts are very, very comfortable with this balanced path," Finneran said. "We have turned Massachusetts around ... and I am confident this is an appropriate step to take."

Last year, tax activist Barbara Anderson fell about 1,000 signatures short in her effort to place Cellucci's tax rollback on the ballot. The Tax Equity Alliance for Massachusetts led the campaign against the rollback. Today, TEAM executive director Jim St. George promised to match whatever effort Cellucci and his supporters mount.

"If the proponents put a large campaign together, we'll match it. We'll make sure voters will have the information in front of them to make informed decisions," St. George said. "If they don't think about it before they enter the voting booth, we're in trouble. That's what the initiative process, and indeed democracy, is all about - an informed electorate making choices. We are eager to lead a campaign that goes to the voters and says 'do you want a tax cut at the expense of education?"

"Taxpayers are asking government to do its job and do it well. Given the state of the economy, taxpayers aren't clamoring for a tax cut," he added. "What they want is a good education for their children and a dignified life for their elders."

St. George said House leaders are being inconsistent in calling for tax cuts after pointing out yesterday that an "ongoing financing nightmare" surrounds the state's road and bridge repair program. St. George said the House shouldn't be proposing tax cuts while simultaneously calling for increases in license and auto registry fees.

House budget chief Paul Haley (D-Weymouth), who has indicated that serious state financing issues exist, said his job is to write a budget that mirrors the will of the House and Finneran. And if the members want tax cuts, Haley said, who is he to reject them?

"My position is to deal with the resources we have," Haley said. "I am not the final arbiter on how we might adjust our tax structure. If this is the course the members want to embrace, then now is the time to budget for it."

The Boston Globe
Friday, April 16, 1999

Finneran proposes cutting income-tax rate
to 5.75 percent
By Tina Cassidy and Scot Lehigh
Globe Staff

House Speaker Thomas M. Finneran proposed yesterday to trim the income-tax rate to 5.75 percent, a reduction that would cut the average taxpayer's bill by $135 a year and reduce state revenues by $270 million.

But the move by the Mattapan Democrat, a fiscal conservative who so far this year has been skeptical of a tax cut, did little to ease the standoff with Governor Paul Cellucci, who has pushed hard for a much deeper cut, to 5 percent, from the current 5.95 percent. The Republican governor again vowed to wage a ballot campaign if the Legislature did not make the full reduction this year.

"I'm not in a negotiating mood," Cellucci declared.

The development leaves Senate President Thomas F. Birmingham as the only member of the Beacon Hill leadership troika opposed to a sizable income tax cut. Reacting to Finneran's  announcement, the Chelsea Democrat said the only reduction likely to pass his chamber was a $50 million property tax relief plan for the elderly.

"I'm not saying it's dead on arrival, but it's highly doubtful the Senate will do an income tax cut," Birmingham said.

Despite a state surplus estimated at $250 million to $300 million, a tobacco settlement windfall of billions of dollars, and Democratic openness to tax cuts, the budget debate could grow rancorous in the weeks to come. Legislative leaders are increasingly nervous about funding shortfalls for the Big Dig while other roads and bridges need repair. And with dismal student and teacher test scores making headlines, others on Beacon Hill want to direct more money toward education.

Some key players in the House were quietly annoyed that the speaker offered a proposal that would reduce state coffers by more than a quarter of a billion dollars next year.

House Ways and Means Chairman Paul Haley, who has argued that the budget proposed by the governor earlier this year is badly underfunded, was unhappy with Finneran's decision, legislative sources said. But the speaker overrode his budget chief's concerns, arguing that with less money available, there would be less pressure to spend in the new fiscal year, which begins July 1.

"It's going to force us to make some difficult decisions," Haley said after Finneran's announcement.

House liberals were also jolted by the news, charging it came without any consultation by the speaker. Finneran insisted his proposal balanced spending needs with the realistic desire for tax relief. But for Cellucci, Finneran's tax cut is not enough.

"We still have one of the highest income tax rates of the big industrial states," he said.

Cellucci's plan would cost the state $1.4 billion a year - or $600 in relief for the average family - when fully phased in over three years. The income tax rate would drop to 5.6 percent during the first year of his program, to 5.3 percent in the second, before settling at 5 percent.

The House is expected to vote on Finneran's proposal before the end of the month.

The Boston Herald
Friday, April 16, 1999

Birmingham says no to tax cut:
But House speaker has different view
by Ellen J. Silberman

Senate President Thomas F. Birmingham yesterday rejected the idea of a major tax cut this year - just minutes after House Speaker Thomas M. Finneran called for a $270 million income tax reduction.

"We have different and higher priorities," Birmingham said.

Birmingham rejected both Finneran's call for dropping the income tax rate from 5.95 to 5.75 percent next year and Gov. Paul Cellucci's plan to drop the rate to 5 percent by 2002.

"I am highly doubtful that the Senate will do an income tax reduction to match the governor or what I understand the speaker has proposed," Birmingham said, adding there is no current public demand for further tax cuts.

Birmingham's words came as both Finneran and Cellucci were trying to make good news on tax day. They will likely force Cellucci to keep on his threat to take his $1.4 billion tax cut on the ballot next year.

Cellucci, who has already pledged to put the state Republican party behind the ballot campaign, said yesterday he would ask business leaders to fund the effort.

"I will lead the charge to collect the signatures to put this question on the ballot, put it before the voters," Cellucci said. "I'm not in a negotiating mood."

Cellucci argued that tax cuts are needed to keep the economy humming in the increasingly competitive global economy. He also said the legislature promised to roll back the income tax when they raised it in 1990. Both Birmingham and Finneran said no such promise was made.

Birmingham's stance is a sharp departure from 1998, when he proposed - and won - a doubling of the personal income tax exemption.

That change saved taxpayers more than $1 billion yesterday and will ultimately send refunds to more than 2.5 million filers.

It also signaled a shift of political power on Beacon Hill, where Finneran has long gotten his way by saying no to Senate and administration initiatives.

Birmingham has proposed a $50 million tax cut for senior citizens of modest means.

Finneran's proposal was a retreat from last year when the House passed a bill rolling back the rate to 5.7 percent.

He said that if the economy was still strong in a couple of years the House might cut taxes again. He called Cellucci's plan to pass the $1.4 billion cut all at once fiscally imprudent.

Birmingham said voters are not clamoring for what he called "an irresponsible tax cut."

"I hear about education. I hear about work force training. I hear about health care. I hear about public safety," Birmingham said.

He compared Cellucci's repeated calls for tax cut to tax-and-spend Democrats in ability to plan for economic downturns, saying taking $1.4 billion off the table through tax cuts is "fiscally the same" as building that spending into the budget.

"This is the Republican version of the sanguine belief that the good times are just going to keep on rolling," Birmingham said.

Finneran also described Cellucci's cut as irresponsible.

"The governor's proposal would commit us to an overly rigid and therefore dangerous tax cut," he said.

The Boston Globe
Friday, April 16, 1999

Cellucci gains as Finneran gives on tax cut

By Scot Lehigh

Globe Staff

He didn't get a refund on his own taxes, but filing day paid a better bonus for Governor Paul Cellucci politically: He won at least some support from House Speaker Thomas M. Finneran in his quest for an income tax cut.

Tax-cutting has become a game of chicken on Beacon Hill, and yesterday Finneran, who had previously cast a gimlet eye at the notion of further tax-cutting, blinked a bit.

To be certain, the speaker didn't give in fully. The governor wants a big income-tax rate reduction, from 5.95 to 5 percent, phased in over three years. That would cost state coffers about $1.4 billion.

Finneran goes nowhere near that far. Still, he did sign on for much of what Cellucci wants in year one. Under Cellucci's plan, the first year reduction would be to 5.6 percent.

Yesterday, Finneran agreed to cut the rate to 5.75 percent next year, which his budget-planners said would cost about $270 million when fully phased in. For a governor who has pushed tax cuts incessantly, that's only about a fifth of loaf, but it was Cellucci who could claim some credit for baking.

"It has been an issue for the leadership team ... since January, when the governor decided this was going to be one of the two centerpieces of his legislative program," said Finneran, adding: "Clearly he has set the framework for part of the debate."

Having the House along doesn't insure passage of such a cut, of course. Yesterday, Senate President Thomas F. Birmingham was dismissive when asked about the prospects of such a tax cut in the Senate "because we have higher priorities, particularly education, health care, and public safety, and those have to be paid for."

In the last few months, Birmingham has moved with surprising speed to lay the groundwork for a 2002 gubernatorial campaign. Yesterday he seemed to relish his role as Beacon Hill's progressive champion, ready to stand up for progressive programs even if it means opposing a tax cut.

Still, the House proposal changes the dynamic on Beacon Hill. Before yesterday, Finneran and Birmingham were skeptical about an income-tax cut - and when the legislative leaders stand their ground, united, their position generally prevails.

Now that Cellucci and Finneran both favor a rate reduction, Birmingham is left as the odd man out. That will put pressure on him.

Birmingham faces a basic choice: a rate cut or no sizable tax cut at all. Yesterday, Birmingham seemed determined to follow the latter course.

Yet that path puts senators in the politically difficult position of saying no to a tax cut both Cellucci and Finneran insist is affordable.

"It will pass overwhelmingly in our branch, and the average person in Massachusetts is going to see it as real," predicts one member of House leadership. "It is going to be a popular political move, and it is kind of tough to stop that train once it gets on the tracks."

With Finneran now aboard, Birmingham will have his work cut out for him to derail the tax-cut express. That may be why he left himself some wiggle room.

"I'm not saying it's dead on arrival," he said.

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