State Income Tax Should Stay
It would be very nice indeed if state government would undertake efforts similar to those of various manufacturers to become lean.
Unfortunately, the opposite seems to be the case. State government in Massachusetts, instead of focusing on control and efficiency of operation, has a lot of fat to trim and could benefit from some lessons in Kaizen and lean manufacturing.
So, while we favor state government’s efforts to trim its budget, we don’t support the effort by the Committee for Small Government’s to repeal of the state’s individual income tax.
Short-Sighted
The tradeoffs inherent in business and politics that students learn about in civics classes have been ignored by the committee. The state’s income tax provides nearly half, about $12.5 billion, of the state’s annual revenue and the committee is perfectly comfortable with hacking off half of that in year one and the finishing it off the following year.
According to a study by Lexington-based Global Insight, Massachusetts’ high income tax burden corresponds with its relatively low corporate, sales and excise tax burdens. Other states, including neighbors New Hampshire and Vermont, which depend far less on income tax revenue, depend much more on corporate taxes, sales and excise taxes.
Often, states like Florida and Nevada, which have very low income tax burdens, can rely on very high numbers of tourists and other visitors to support the state through sales and excise taxes. Those states also make a much smaller investments in education.
Without an income tax, Massachusetts could certainly look forward to steep increases in sales and excise taxes, but without the volume of visitors to subsidize that burden the way they do in Florida and Nevada. Business groups in the state fight tooth-and-nail against any increase in the state’s relatively modest corporate tax and only have to point to New Hampshire for an example of how small one’s business community can be when the state enacts sky high corporate taxes.
The repeal of the income tax would also rip massive chunks of funding away from education, infrastructure and workforce and economic development, the most important elements in the success of the state and its businesses.
The Wrong Road
Global Insight calculates 71 percent of the state’s $1.09 billion in higher education appropriations, including financial aid, would be at risk without the income tax. Those cuts include reductions to workforce training programs and would also make higher education unaffordable to many.
In fiscal year 2008, the state spent $228 million on infrastructure improvements. What the state spends on such projects is actually far more, however, because much of the spending is funded with bonds.
Without an income tax, not only would the funding for those projects face severe cuts, but the state’s bond rating would also be likely to take a severe hit making it nearly impossible for the state to borrow money to complete projects, or for anything else.
The last time Massachusetts’ bond rating fell below an ‘A’ was between 1989 and 1991. During that time, the state’s unemployment rate rose from 3.4 percent to 9.1 percent. Total unemployment hit 11 percent.
The committee relies on financial misdirection and oversimplification to make its case. It likes to assert that the average Massachusetts taxpayer would save $3,600. If fails to recognize, or admit as the case may be, that Massachusetts’ income tax is progressive; the more one earns, the more one pays. Those making less than $25,000 will see an average savings of $240 that would be quickly eaten up by regressive taxes like increased tolls on the state’s highways and increased sales and excise taxes. Those making more than $100,000 would see a savings of about $15,000.
State government must become more streamlined, efficient and accountable. But hacking away half its revenue is not the answer. For the sake of the state and its tentative reputation as a good place to do business, we hope far fewer people vote ‘yes’ on Question 1 than signed onto the petition to bring it to the ballot.
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