Can Massachusetts afford not to roll back the income tax?
By bill vernon
Making affordable health insurance available to small businesses and their workers is the number one wish for Massachusetts small-business owners. A close number two may surprise you: Lower the state income tax rate to 5 percent.
That’s because an across-the board income tax cut is the best economic stimulus program. Income-tax cuts produce multiplier effects of economic activity.
Despite the high cost of owning and operating a small business in Massachusetts, the state’s small-business sector remains large - just not growing. Today, more than 100,000 businesses with 50 or fewer workers employ more than one million of the state’s three million workers.
While politicians profess support for small businesses, the Legislature’s economic stimulus programs considered and passed during the past five years neglect the most important economic stimulus for small businesses - the state income-tax cut.
Since most small businesses are organized as sole proprietorships, partnerships or subchapter S corporations, small-business owners pay their taxes by filing Form 1 - just like their employees. The income tax represents money taken directly from the pockets of small-business owners, their employees and their customers.
The income-tax cut would not mean a large amount of extra money for one business, but some companies would surely decide to reinvest it into the business, create jobs, or give employees a raise. Many small businesses may consider increasing purchasing. Increased purchases by 100,000 small businesses in every city or town, with the economic multiplier effect, would be real economic stimulus statewide. Taxes remain the one high-cost item where policymakers can make a difference.
With the recent talk of raising the gas tax, small-business owners need the boost in confidence afforded by an income tax cut. While some economic growth from the biotech and high tech sectors will trickle down to the small business sector – a rising tide lifts all boats – Massachusetts is missing the big economic ship by failing to directly aid small business through an income tax cut.
Fiscal watchdogs say the state cannot afford the income tax cut, but small business says we cannot afford not to cut the income tax to 5 percent. The state has enjoyed $1 billion surpluses during the past two fiscal years and they could easily have been larger with fiscal discipline. While the state faces serious budgetary challenges in the near future, only by turning off the revenue spigot can we ensure that legislators will exercise fiscal discipline, focus on priorities, and limit spending growth elsewhere.
Equally necessary is a growing state economy to produce the revenue to support spending priorities. A rollback in the income tax would produce increased economic activity from small business and increased purchasing power for three million individual taxpayers.
For all of these reasons - to encourage small-business growth and consumer spending, to apply fiscal restraint on legislators, and to ensure a healthy state economy long-term to provide revenues to fund priority items - the income-tax rollback is a policy we can’t afford not to implement.
Bill Vernon is president of the Massachusetts chapter of the National Federation of Independent Business, the nation’s leading small-business advocacy association, with offices in Washington, D.C. and all 50 state capitals. He can be reached at 617-482-1327. More information about NFIB is available online at www.NFIB.com.
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