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September 24, 2013 / needhamgrassroots

Not Taxachusetts. Sorry.

reblogged from Progressive Mass

Massachusetts total state and local taxes are lower than national average. [click to see larger]

Massachusetts total state and local taxes are lower than national average. (Source: Mass Budget and Policy)

We haven’t deserved the insult since the 1970s, So if someone’s trying to convince you of an argument by shouting “TAXACHUSETTS!!” …you might want to be skeptical of everything else they’re selling.

We haven't been "Taxachusetts" since the 1970s.

We haven’t been “Taxachusetts” since the 1970s.

RELATED: The wealthy don’t pay their fair share in Mass. taxes (graph):

Rich Arent Paying

(Source: Mass Budget and Policy)

RELATED: We’ve been cutting investment in Massachusetts long-term economic stability…drastically

Spending Has Been Cut

(Source: Mass Budget and Policy. For more budget cut line items, click here)

RELATED: We’ve had a structural deficit for years…largely because of tax cuts:

From MassBudget, authored in 2008, but crucial background for today’s economic climate for the Commonwealth (and how POLICY has determined our current economic predicament): 

Long-Term Causes of the Fiscal Crisis

Massachusetts enjoyed substantial budget surpluses in the mid- to late- 1990s. But even before the economic decline, the state budget already had a structural deficit in FY2008. While the immediate cause of Massachusetts’ fiscal crisis is the national recession, policy choices made over the past decade created a structural deficit that have reduced the state’s ability to address the economic downturn.

Understanding the origins of the structural deficit requires examining three factors:

  • -economic growth,
  • -changes in state spending, and
  • -changes in state revenue.

Over the long term, if spending and revenue grow at the same rate as the overall economy, a state can maintain fiscal stability.

Click for larger image
Real Growth in Massachusetts Economy, Spending and Revenue FY1998 to FY2008

Between FY1998 and FY2008, Massachusetts’ economy grew at an annual rate of 2.64 percent in real terms. During this period, net state spending grew at an annual rate of only 2.26 percent. This means that the amount of money being spent on education, health care, human services, local aid, and the rest of the state budget was growing more slowly than the economy as a whole.

If spending was declining as a share of the economy, why did the state’s fiscal condition deteriorate? During the same 10 years revenue, which includes state taxes and fees, [only] grew at an annual rate of 1.48 percent — significantly slower than the growth of the economy as a whole. This was because the state made substantial income tax cuts and the sales tax has not kept pace with changes in the economy.

If the tax revenue had grown as a steady share of the economy during these past 10 years, Massachusetts would have shown a substantial surplus and would have been in a far better position to weather the current national recession.

The Role of Tax Cuts

While the immediate cause of the fiscal crisis is the national recession, policy choices over the past decade have weakened the Commonwealth’s capacity to weather this storm. In FY2008, while the economy was still strong, the state budget was already structurally unbalanced. This fact sheet summarizes the tax changes in the decade between 1998 and 2008 that erased large budget surpluses and left the state fiscally unstable.

Overall, state taxes as a share of the economy were $3.3 billion lower in FY2008 than they were in FY1998. The two primary causes of this decline were income tax cuts and erosion of the state sale tax.

INCOME TAX:

  • The income tax rate was reduced from 5.95 percent to 5.3 percent, costing $1.3 billion.
  • The tax rate on dividend and interest income was reduced from 12 percent to 5.3 percent, costing $720 million.
  • The personal exemption was increased from $2,200 per person to $4,400 per person, giving each taxpayer a cut of $117, and costing $440 million.
  • In 2002 the state repealed the capital gains tax cuts enacted in 1994 which increased revenue by $1.1 billion.

Overall changes in the state income tax resulted in net loss of $1.4 billion in income tax revenues.

SALES TAX:

While the sales tax rate remained constant at 5 percent over the period between FY 1998 and FY2008, sales tax revenue was $1 billion lower in FY2008 than it would have been if it had grown with the economy. [nb: sales tax, one of our most regressive taxes, was increased in 2009]

  • Use of the Internet to purchase goods has increased significantly over the past decade. Under current federal law it is very difficult for merchants to charge state sales taxes for items purchased over the Internet.
  • The service sector, which is not subject to the sales tax, is growing as a share of the state’s economy.

from MassBudget/2008

RELATED: There’s actually a real, viable solution the Legislature could vote on today

Legislators can pass “An Act to Invest in Our Communities,” an income tax/personal exemption increase that would be:

1) Fair – People making less pay less; when you do better, you pay a little more, which reduces the overall regressivity of our Massachusetts tax system (the poor pay disproportionately MORE of their income than the wealthy, who pay the LEAST]).

2) Simple — it applies to everybody.

3) Predictable — Businesses need to be able to rely on a stable, predictable tax structure to know how plan ahead to grow their business and create jobs.

Effects on Tax Share if “Act to Invest” were passed:

The wealthiest would STILL pay least of any other income group

Ask your legislator: Why hasn’t the Legislature fought for this? And when will they address our significant needs, and our giant tax inequality?

Here’s a list of Legislators’ contact info, including a growing list of Legislators’ twitter and facebook accounts: progma.us/MAlegislators

LINK BACK: http://hmny.me/nottaxachusetts

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