Mass. Should Consider Tax Break For Businesses
The economy may still need a booster shot, but State Senate President Therese Murray indicated this month that if Massachusetts tax collections continue to rise, as they have been since July, lawmakers may push for a cut in the state's personal income tax. That's a welcome thought when you consider that the Legislature defied the will of the voters 11 years ago, when they approved a ballot referendum calling for a rollback of the current 5.3 percent income tax to 5 percent.
When you consider our unemployment rate, the Bay State is performing significantly better than the nation as a whole. While that’s a comforting thought, the state could be doing even better by sending a clear, unambiguous message to the business community that the political leaders stand in support of sustained economic growth. They can do this in a couple straightforward ways:
• Cut corporate income tax rates. Massachusetts ranks 9th highest in the U.S. among the 46 states that have corporate tax rates, according to the Tax Foundation, a nationwide nonprofit that researches tax issues.
• Boost retail sales by cutting the sales tax, which was hiked to 6.25 percent from 5 percent in 2009.
Taxes on corporations and businesses made up only 3.5 percent of the revenue the state took in last month, according to preliminary numbers from the Massachusetts Department of Revenue. But the total tax take from business was up 358 percent from August 2010. If that continues, the state should be able to give back a little; specifically, on the 8.25 percent corporate income tax rate, as well as the 9.5 percent levy on financial institutions.
Two years ago, amid a sputtering economy and declining tax revenues, the state hiked the sales tax to 6.25 percent from 5 percent, putting retailers at a further disadvantage compared with all of its border states except Rhode Island. A cut to 5.5 percent would drop Massachusetts’ rate below those of neighboring Vermont and Connecticut. (Competing with New Hampshire, which doesn’t have a sales tax, is an issue that won’t go away.) It may also provide a little boost for retailers and consumer purchasing.
Amid a nationwide economy that’s still struggling to recover from the Great Recession, Massachusetts is doing relatively well, if you consider recent job market numbers. The unemployment rate, 7.4 percent, is well below the national rate of 9.1 percent. Also, the 0.5 percent growth in industrial employment over the last year, according to Manufacturers’ News Inc., provides another reason to believe things are turning for the better, even if only slightly.
But the challenge is maintaining that momentum. Anything lawmakers can do to improve the competitiveness of the Massachusetts business base will send a clear message to the business communities here and outside the state that growing a business here can be a good long-term investment.
Returning some of the proceeds of an increase in state tax collections to the job generators will do nothing but encourage them to invest in further growth and hiring.
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