Taxing Times Or Tax Relief?
The state Department of Revenue put out a quiet reminder at the very end of 2009 that the state’s corporate tax rate would drop from 9.5 percent to 8.75 percent as of Jan. 1.
At the same time, the financial institution tax rate dropped from 10.5 percent to 10 percent.
Savings Rate
The combined reductions are expected to result in about $56 million in tax savings to businesses in 2010. In 2011, the corporate rate is scheduled to be reduced another half point to 8.25 percent. It is scheduled to be reduced again to 8 percent in 2012. The financial institution tax rate is scheduled to drop to 9.5 percent in 2011 and 9 percent in 2012.
The reductions are in part the result of work done by a legislative tax code study commission that convened in 2007.
These changes should form the basis for wider reaching tax reforms in the Bay State. In the Tax Foundation’s annual Business Tax Climate Index, Massachusetts ranks 36th in its overall score despite ranking 14th in the individual income tax category and 26th in the sales tax category.
That is in large part due to the state’s dismal showing in the foundation’s rankings for property taxes, unemployment insurance taxes and, of course, corporate taxes.
We’re glad the state has chosen to do something about one of them. But there’s much more work to be done, and a lot of that work has to do with the burdensome complexity of the Massachusetts tax system.
In another ranking, this one by the Beacon Hill Institute at Suffolk University, Massachusetts does very well, indeed.
The institute’s annual “State Competitiveness Report” consistently puts Massachusetts at the top of the list because of the high levels of education attained by its citizens and innovative prowess of its workforce.
When confronted with this, the folks at the Tax Foundation didn’t try to dismiss the institute’s report.
Instead, an institute spokesman wondered, “Imagine how much better (New York or Massachusetts) could be if their tax structure was less burdensome.”
We tend to agree.
We think it is a big step in the right direction that the state has made an effort to bring corporate tax rates down over the next few years. It’s not too much to expect that cities and towns that use separate property tax rates for residential and commercial properties could make the same kinds of incremental changes to help level the playing field for business.
In cities like Worcester, where the rates differ greatly, it may take a bit longer. But embarking on a multi-year plan to slowly bring commercial rates down while bringing residential rates up would be better than allowing the gulf between the two rates to continue to widen.
Baby Steps
A similar incremental approach could be taken to the unemployment insurance tax, which the Beacon Hill Institute describes as “quirky,” and one of the only things that “pulls us back” when it comes to competitiveness.
Massachusetts has some of the highest unemployment insurance premiums in the country and the state’s unemployment insurance fund is administered in a backward way. In good times, the state, in response to the rather unwise prompting of businesses, has frozen payments into the unemployment insurance fund. Now that the economy is a shambles and companies need to lay off employees to stay afloat, the fund is empty and premiums are on the increase.
A step-by-step reduction in premiums combined with a commitment to bolster the fund when times are good would go a long way toward preventing businesses from feeling like they’re being punished for making the kinds of tough decisions they need to make to survive.
Massachusetts is never going to be a low cost state. However, making common sense improvements to our tax code needs to be a full-time commitment, not a one-time effort made when the economy is humming.
If the state can be a leader in the creation of landmark universal health care legislation, it can certainly find intelligent solutions to its vexing tax issues. Massachusetts needs to exit this recession in a more, not less, competitive position.
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