The Boston Sunday Globe
December 5, 1999
Good news for workers: Taxes going down
New budget saves a typical family $60 a year
By Michael Crowley
Globe Staff
It was nearly drowned out by disputes over education reform and campaign finance.
But tucked into the $20.9 billion budget passed last month was good news for ordinary
people: their taxes are going down.
For the first time since the fiscal crisis nearly a decade ago, the Legislature
has adjusted the state's personal income tax rate.
For a typical family with income of $42,300, the savings is not huge: about $60
per year.
But some say it may mark the beginning of the end of Massachusetts' heavy reliance
on the income tax -- the third highest in the nation according to the National Conference
of State Legislatures -- and the largest source of revenue for the state's ever-expanding
budget.
Next year, a referendum is all but certain to appear on the November ballot
seeking to cut the income tax by $1.1 billion: about $200 a year for a typical family, or
$600 a year for those earning closer to $100,000.
Those pushing the big cut, such as Governor Paul Cellucci, are convinced it is the
only way to arrest the runaway growth of the budget, which is now greatly outpacing
inflation.
"The Legislature cannot continue to increase spending," Cellucci said
last week. "And one of the positive effects of this tax cut is that it will take the
money off the table. It will have the positive effect of forcing the fiscal discipline
that Jane Swift and I have been talking about."
Not everyone is convinced such dramatic relief is necessary, however, noting that
the state's high income tax rate is partly offset by relatively low local taxes and other
government-imposed fees.
And public opinion polls have shown for months that citizens these days prefer to
invest in pressing needs such as education and health care rather than receive money back.
"Tax cuts are a low priority for voters. The president received substantial
public support when he vetoed a federal tax cut that was smaller than this relative to the
size of state government," said Jim St. George, executive director of the Tax Equity
Alliance for Massachusetts.
St. George also said that with state tax revenue already shrinking as the
Legislature phases in $700 million in tax cuts passed last year, ranging from a phaseout
of the capital gains tax to a reduced levy on dividends and interest, Massachusetts cannot
afford the cut.
"If the state does go into a recession, then we're in very deep
trouble," he said.
The plan to roll back the income tax to 5 percent from 5.75 percent has been
Cellucci's mission since the day he became governor; it was even the subject of his first
news conference after succeeding William F. Weld in 1997.
But the Massachusetts income tax has a far broader significance. Most visceral is
the issue of the promise.
Cellucci and activists argue that when lawmakers raised the tax rate in 1989
during a fiscal crisis, they promised to return it to 5 percent once the budget emergency
passed. Some Beacon Hill leaders dispute that such a promise was made or that it would be
binding.
And, fiscally, Massachusetts depends on income tax revenue more than most other
states. On average, states collect about a third of their revenue through income taxes,
according to the National Conference of State Legislatures. But 56 percent of
Massachusetts' $15 billion in tax revenue comes from the income tax.
With every successive year the state budget grows, Cellucci argues with more vigor
that the state could return surplus dollars rather than spend them. This year's state
spending plan will cost $1.4 billion, or 6.3 percent, more than last year's. Over the past
five years, the budget has grown by 28 percent.
Also, while Cellucci emphasizes that his tax cut would relieve an onerous burden
on average families, allowing them to keep more money for things such as hockey equipment,
summer camp, and dining out, he also says the tax cut would make Massachusetts more
competitive in a global economy.
"This will secure the economic future of our state," Cellucci said.
"It's one of the highest tax burdens in the United States," says
Administration and Finance Secretary Andrew Natsios. "It has a major effect on our
competitiveness."
Unquestionably, Massachusetts' personal income tax is one of the nation's highest.
By some measurements, Massachusetts claims more money through income taxes than any other
state.
For instance, while several other states have graduated tax systems with higher
top rates, of up to 12 percent, most average families pay at levels below 5.95 percent.
And of the five other states with a single, or "flat," income tax rate,
Massachusetts has the highest. Colorado's rate is next, at 5 percent. Pennsylvania's is
lowest at 2.8 percent. Seven states, including New Hampshire, have no income tax at all.
But determining the true weight of Massachusetts taxes depends largely on how the
scale is set.
While income taxes may bother taxpayers most, many economists warn that other
taxes and fees at both the state and local level must be counted to truly understand a
state's overall tax burden. Many of them also say the burden should be evaluated as a
proportion of total income earned by residents of the state, to account for a wide
disparity in incomes between wealthy states such as Massachusetts and poorer ones such as
Alabama.
Because Massachusetts has relatively low fees and property taxes, the state's
overall tax burden drops to 28th in the nation when those other factors are considered,
according to the Tax Equity Alliance for Massachusetts. The conservative-leaning Tax
Foundation in Washington places Massachusetts even lower, at 37th.
By another measure, however, the state's overall burden is much higher.
Considering taxes paid per capita, Massachusetts has the nation's sixth-highest state and
local tax bite, according to the conservative Beacon Hill Institute.
Natsios argues that this is how businesses look at taxes in making decisions about
where to locate.
"What counts, frankly, is not how any of us analyze it, but how the business
community analyzes it," Natsios said. "The tax cost per person who works for
them affects overhead rates."
If Cellucci's tax cut were to pass, it would constitute one of the biggest state
tax reductions in recent years.
According to a July report by the National Conference of State Legislatures, only
four states of 44 states that had completed their budgets lowered taxes by more than 3
percent in 1999. By comparison, Cellucci's $1.4 billion income tax cut would amount to a
nearly 10 percent reduction in state tax revenue.
