State voters have given themselves the biggest income tax
cut in state history. Now state officials will have to decide how to pay for it.
House Ways and Means Chairman Paul Haley, D-Weymouth, said
today that he was disappointed that voters approved Question 4, which cuts the income tax from 5.85 to 5
percent.
Haley is concerned that the economy might not continue on a
strong enough ride to allow the state to support its programs while rolling back the tax over three years.
"Hey, this is what (Gov. Paul) Cellucci wanted," Haley said.
"And now he's going to have to manage it. It may be manageable if the economy continues to set records and the revenues
continue to remain strong. But no economist is suggesting it can continue over three years."
He said the tax cut will be a little easier to manage
because voters didn't approve two other costly initiatives: Question 6, a break in motor vehicle excise taxes; and Question
5, universal health care reform.
Haley said the gradual income tax cut will mean a loss of
$170 million in the first year, $480 million in the second year and $1.2 billion by the third year.
"It stands to reason that if revenue growth slows, while at
the same time we're kicking in a significant tax cut, then difficult decisions will have to be made," he said. "It's
unclear what those will be."
The House had proposed allowing for further reductions in
the income tax rate based on the success of the economy. But Haley said he didn't think the Legislature would attempt to
bypass voters' wishes by resisting a tax cut.
State Rep. William Galvin, D-Canton, said the tax cut will
force the state to dip into its surplus and cut some already-approved projects.
"We're going to have to make some tough decisions," said
Galvin, a member of the Ways and Means Committee.
Galvin is also concerned about the impact the tax cuts will
have on the state's debt, which is among the nation's highest.
The approval of Question 7 will create a state income tax
deduction for charitable donations.
With 91 percent of the precincts reporting, Question 4
passed 60 percent to 40 percent. The income tax cut will save a family of four $200 to $500 annually.
Approval of Question 4 is a huge political victory for
Cellucci, who made the tax cut the centerpiece of his administration. After repeatedly failing to sell the Democratic
Legislature on a tax cut, he put Question 4 on the ballot and lobbied hard for its passage.
Democratic legislators, unions and social service providers
campaigned against the tax cut, saying the $1.2 billion loss in state revenue could lead to steep spending cuts, particularly
in the event of an economic downturn.
They argued the state's surplus is better spent on improving
education and health care and reducing the state's debt.
Jack McCarthy of the Campaign for Massachusetts' Future,
which opposed the measure, said last night that Question 4 opponents had the harder job.
"The governor saying, 'Do you want a tax cut?' is like
saying 'Do you want free ice cream?'" McCarthy said. "Our message is, take a smaller portion of that free ice cream and
then eat your vegetables, because that's what's better for you in the long run."
State Treasurer Shannon O'Brien, one of four potential
Democratic gubernatorial candidates in 2002 to debate Cellucci on the merits of Question 4, said last night that the tax cut
would be easier to afford with the defeat of Question 6, the proposed tax credit on tolls.
"With 4 and 6 together, we would have deficits," said
O'Brien, a Whitman resident. "It would have been a dangerous scenario for the commonwealth's fiscal health."
O'Brien had argued that the state should use its surplus to
pay down the state debt.
Robert Mullen of Abington, a business agent for Pipefitters
Local 537, said the tax cut is "going to hurt everyone."
Less state revenue means less money for cities and towns,
Mullen said today.
"My real estate taxes will go up. My streets won't be plowed
as well," he said.
The tax credit on tolls and the auto excise would have cost
state coffers $623 million in fiscal 2002, according to an analysis by the Massachusetts Taxpayers Foundation, a
business-backed government watchdog group.
If both Questions 4 and 6 had passed, they would have taken
a combined $2 billion out of state coffers, nearly 10 percent of the state's $21 billion budget.
Michael Widmer of the Taxpayers Foundation said that if
Questions 4, 5 and 6 all had passed, "We would have had a fiscal crisis."
He predicted the passage of Question 4 would force the
Legislature to hold state spending level.
"It's going to be difficult to further expand health care
coverage beyond where we are today while phasing in Question 4," he said....
Staff writers Dina Gerdeman and Sue Reinert contributed to this
story.