Massachusetts Goes For Tax Quick Fix

In 2000, when the economy was strong and the state appeared to be flush with funding, Massachusetts taxpayers voted to incrementally roll back the personal income tax rate from 5.75 to five percent.  In 2002, the state legislature halted the rollback at 5.3 percent in response to an economic downturn with a provision that it could resume if revenues exceeded 2.5 percent growth.  The fiscal restraint inherent in this provision is admirable, but did not quite accomplish the legislature’s primary goal – preventing unaffordable tax cuts when the state can least afford them.

This year, it looks like the tax rollback will resume since revenues are expected to increase between 4 and 5 percent over 2010.  But these figures actually represent a decrease in revenue when compared to pre-recession levels.  In 2008, tax revenues were nearly $21 billion.  That number dropped to just over $18 billion in 2009, and increased incrementally to $18.5 billion in 2010.  This year’s projections put the state’s revenue at slightly over $20 billion, leaving the state less well-off than it was in 2008.

The pinch on the state’s budget has been felt by almost every Massachusetts resident.  Sweeping funding cuts in education, law enforcement, health care, housing, and transportation have increased the burden on low- and middle-income families year after year.  Facing a $1.9 billion budget gap in 2012, this fiscal year’s budget also includes drastic spending cuts.  The largest of these cuts include carving out $63.8 million from higher education funding, $316.7 million from MassHealth (the state’s Medicaid program), $56.8 million from transportation funding and $100.5 million from the budget for courts and legal assistance (primarily reducing the state’s indigent defense system).  “What I’ve seen in my district is continued cuts to education, environmental aid and affordable housing,” said State Senator Jamie Eldridge of Acton. “People are really talking about how the budget cuts that have already happened are very negative.”

Proponents of the tax rollback refer to the reduction from 5.3% to 5.25% as “miniscule.”  Yet for 2012, that reduction represents $114 million in lost revenue for the state.  Obviously, that is not enough to make up for the state’s $1.9 billion budget shortfall, but it could stave off further tuition spikes in the state university system and mitigate planned transit fare hikes. 

Massachusetts also has an opportunity to learn from its mistakes.  When the economy was flush in the early 90’s, Massachusetts dropped its tax rates, then spent years trying to fill in its budget gaps.  The same pattern has developed again, made worse by a deep and unrelenting recession.  Using the first glimpses of economic recovery as an excuse to lower taxes yet again is imprudent.  Instead, the state should use the revenue surplus to revoke a portion of the drastic cuts implemented in this year’s budget, or at the very least, retain the surplus to stave off future budget shortfalls.

Photo of Massachusetts State Senate Chambers via Cody Hanson Creative Commons Attribution License 2.0