By Andy Metzger | State House News Service | March 26, 2013
With a major tax proposal baked into the governor’s budget and legislative leadership also gearing up to raise revenues, a full discussion of taxation is bound to move from behind closed doors to the House and Senate floors. On Tuesday, lawmakers, economists and members of the public offered their alternatives, endorsements and critiques of Patrick’s tax proposal.
Economists who agree with Gov. Deval Patrick’s plan to raise $1.9 billion in new revenue for education and transportation suggested some tweaks to the governor’s plan on Tuesday.
Patrick, who has said he is open to alternate proposals, submitted a budget in January that would increase the income tax 1 point, to 6.25 percent; lower the sales tax 1.75 points to 4.5 percent; double the personal income tax exemption; and eliminate 44 personal income tax deductions. Patrick’s plan also calls for $499 million in new corporate taxes, according to a Massachusetts Taxpayers Foundation analysis.
Two economists who signed on to a letter of support for the governor’s proposal said that it could be improved, primarily by increasing the income tax by a lesser amount and keeping the sales tax closer to its current rate.
“I’m in favor of highly progressive taxes,” Barry Bluestone, director of the Dukakis Center at Northeastern University, told the Joint Committee on Revenue. He told the News Service that contrary to some beliefs, the sales tax is “actually not a regressive tax, overall.”
Bluestone proposed a tax overhaul would raise the income tax to 5.95 percent, keep most personal deductions, keep the sales tax at 6.25 percent, raise the gas tax by 9 to 11 cents per gallon, and lower corporate taxes by “a point or two.”
That would raise the same $1.9 billion, Bluestone said, agreeing that the state needs to increase funding for transportation and education. Bluestone said corporate taxes are often passed along in the forms of higher prices and lower wages.
Officials from the credit rating agency Moody’s have cautioned that the governor’s plan could leave the state too reliant on the income tax, making it account for more than 70 percent of the state’s revenue.
Alan Clayton Matthews, an economist at Northeastern University who also signed the statement supporting the governor’s plan, gave some credence to the criticism, telling the News Service, “That’s one of the reasons for not lowering the sales tax.”
Chip Faulkner, of Citizens for Limited Taxation, proposed lowering both the income and sales taxes to 5 percent, and noted that voters had approved a ballot measure to lower the income tax to 5 percent in 2000 but the Legislature halted the gradual decrease at 5.3 percent. It later dropped to 5.25 percent.
“In terms of taxes, we’re not suffering from a dearth of taxes,” said Faulkner. “According to the Tax Foundation, our state and local tax burden is fourth per capita in the United States.”
Noah Berger, of the Massachusetts Budget and Policy Center, said higher education is closely correlated to high wages, a change from the 1970s when industrial hubs led the nation in wages.
The MBPC has proposed four alternatives to the governor’s plan that it said would raise $1.9 billion in revenue. One proposal would match the governor on an income tax increase, while lowering the sales tax by a smaller amount and maintaining income tax deductions. Another would follow the governor’s lead for income, but keep short-term capital gains taxes at 12 percent, and maintain deductions. A third would increase the income tax to 6.25 percent, lower the sales tax to 5.25 percent, and would raise the personal income tax exemption by half, where the governor plans to double it. Finally, the MBPC proposed increasing the income tax to 6.25 percent, keeping short-term capital gains at 12 percent, lowering the sales tax to 4.5 percent and keeping the personal income exemption at its current level.
The Revenue Committee met for roughly four hours, taking in a variety of proposals to raise revenues or to cut taxes.
Wayne Harper, a Republican state senator from Utah, lobbied in favor of House Revenue Chairman Jay Kaufman’s bill (H 2629) that Harper said would allow Massachusetts to join a multi-state cooperative agreement to collect sales tax on internet sales.
Harper told the News Service he expects Congress to act on federal legislation regarding internet sales taxes, and said the Senate, which had previously featured “more opposition to the bill,” included the legislation in the budget it sent to the House.
Even if Congress doesn’t act, Massachusetts could start collecting $15 to $20 million by joining the group of 24 states.
“Our goal is to get every state on board,” Harper said. States that join would be able to prepare their revenue departments for the potential change, he said.
Faulkner and Sen. Gale Candaras (D-Wilbraham) took opposing tacks on legislation (S 1311) that she said would exempt a casino from the strictures of Proposition 2 1/2, which limits the amount that cities and towns can raise property taxes.
“Absent the exemption from the operation of Prop 2 ½, the city of Springfield would most likely lose, because it’s at its levy limit, probably lose somewhere in the neighborhood of $20 million,” Candaras said.
“In terms of the Prop 2 1/2 law, it got passed in 1980 and over the decades our organization has been critical of the Legislature on a variety of things. We’ve never been critical on the state Legislature of the way they’ve handled Prop 2 ½,” Faulkner said, calling the Springfield bill a “violation” of the law, which was passed by a voter referendum.
Lawmakers pushing for an income tax increase to fund transportation and education (S 1313/ H 2687), a plan similar but distinct from the governor’s proposal, said people around the state want better infrastructure and education, and are willing to pay for it.
“When I ran last fall, I was able to pick this up as something that I held very closely to my heart,” said Rep. Mary Keefe (D-Worcester), who said she was labeled the “tax candidate” and received 40 percent of the vote in a five-way primary.
Rep. Randy Hunt (R-East Sandwich), who is a certified public accountant, has proposed a study (H 2606) to look into simplifying the personal income tax code.
“Hopefully we’ll have something that’s easy to manage and builds into it a level of progressivity in the tax system that we aren’t getting today,” Hunt said.