A Tax Policy Decided 15 Years Ago Raised Questions for Unending Debate

We are just a few months away from the 15th anniversary of the historic November, 2000, election when Massachusetts voters approved a referendum calling for the reduction of the state income tax rate from 5.95% to 5%.

No doubt, most everyone who voted for the reduction believed it would happen quickly if the referendum was passed.  But that was not to be.  The legislature, fearing the devastating effects of an immediate .95% reduction on government programs and services and projects, exercised its prerogative to set the actual terms and schedule of the decrease. 

The result was a slow, incremental reduction linked to the overall performance of the Massachusetts economy.  After fiscal years when the economy was strong and state revenue reached a certain benchmark, the rate would be reduced by .05% on January 1 of the next calendar year.  That process has brought us to the present situation: an income tax rate of 5.15% and a required reduction to 5.1% on New Year's Day, 2016.

By most reliable estimates, the state has lost approximately $3 billion in total revenue during the 15 years that the rate has been slowly cut -- an average of $200 million per year in lost revenue.

There are many who believe that money was needed more by government than the taxpayers, or who, looking at the many unmet needs in this state, lament what might have been accomplished with those funds over the past decade-and-a-half.

For example, State Senator John Keenan of Quincy, said May 19 during a debate on the FY 16 budget that the legislature should  be focusing on the $3 billion "given up" since the income tax rate began its downward track.  Keenan pointed out, correctly, that, since 2008, every yearly increase in state revenue has been consumed by the growth in multitudinous health care costs borne by the Commonwealth, implying, I believe, that cutting income taxes in those years was short-sighted and antithetical to the long-term interests of the populace.

You can make a good case that Keenan and like-minded legislators are right, that the relatively small gains made  by average taxpayers through reductions in the income tax rate have been outweighed by the crimp in government's ability to address serious needs in the areas of transportation infrastructure, public safety, education, and early childhood interventions, to name just a handful of glaring priorities. 

If you conducted a good statewide poll to assess how the typical resident of Massachusetts feels about the lowering of income taxes, as initiated by the 2000 referendum, and the resultant "loss" of $3 billion in state revenue, my guess is a large majority of respondents would favor lower taxes and say they did not wish  our government had collected that $3 billion.

Most persons are cynics when it comes to the question of  government wisely managing the resources that we the citizens place at its disposal.  That cynicism has only deepened since the Great Recession hit in 2008.  Those not employed in government have experienced or witnessed their jobs and their particular businesses and industries drastically changing under the pressures emanating from post-Great Recession, world-wide economic upheavals.  They know that government services have not been similarly changed and re-made, and they think, Why should we give more money to a government stuck in the old ways of doing things?

Yet the unmet needs of our society -- our Commonwealth --  are huge and undeniable.  Take transportation infrastructure as one example.  It has been reliably determined that we would have to spend $16 billion to  bring our roads, highways, bridges and public transit systems up to snuff.  Poor transportation infrastructure is a dead weight on our economy; fixing it will unleash growth, create jobs, and increase revenue to state and local governments.

Herein lies the greatest challenge to the Governor Baker administration.  First, to make our government run more effectively with the revenue it currently collects.  Second, to persuade the citizens of Massachusetts to support new revenue sources for modernizing  infrastructure, improving public education, and protecting children and optimizing the potential of children, particularly in their earliest, most vulnerable years.

I have no reason to believe that Charlie Baker is contemplating new revenue sources.  The evidence actually points in the opposite direction.  But I believe he will eventually come to the realization new revenue is needed, and that he will advocate for new revenue by proposing that any new revenue be sequestered, that is, used only for a certain defined purpose or a set of clearly identified projects and initiatives, and, further, that he will propose an independent oversight body to certify that new revenue is being used only for defined and agreed-upon purposes, projects and initiatives.

For starters, I'd be willing to pay my share of an annual $200 million increase in state income taxes if it could be certified that that money would be used exclusively to fix and improve transportation infrastructure.  Would you?

   





  





 

One-Stop Shopping in Financial District Should Include Buying Medicinal Pot

When the Boston Zoning Board of Appeals meets next on August 4, I hope it votes to approve a permit sought by a medical marijuana dispensary to open a retail outlet at 21 Milk Street in the Financial District.

It's not that I ever plan on buying any medicine there, although it would probably do my aching back some good every now and then to light up one for liberty, it's just that opponents of a pot shop at 21 Milk have their heads screwed on backwards and deserve to be defeated.

As declared by a large majority of Massachusetts voters, medical marijuana is a legal product in this state.  To purchase it, a citizen will need a prescription from a physician or other licensed medical professional, any one of whom can lose her license for prescribing this or any other medicine for the wrong reasons.

Why, then, should anyone fear what someone holding a prescription for pot will do in the process of filling that prescription?  Why would anyone think the pot prescription holder will do anything more dangerous or anti-social than someone who routinely fills a prescription for other kinds of pain killers or anti-anxiety medicine?  Aren't people likely filling prescriptions for Percocet and Vicodin every day at pharmacies in the Financial District without incident?  So what's the big deal about people buying medical marijuana there?

Yet, when a public hearing was held on July 7 on the license application by Patriot Care Corp., the Downtown Boston Business Improvement District was there to register its unequivocal opposition.  The Boston Herald quoted the chairman of this organization as saying, "Our members have invested a lot of dollars in this area at a time when it was in decline.  We feel it's on the upswing, and this is a step in the wrong direction." 

The Boston Police Department also opposed the license for Patriot Care.  The consequences of opening a pot shop at 21 Milk figure to be a "great unknown," a police superintendent testified.

The Financial District is exactly the kind of area where a medical marijuana dispensary should be located.  It's a great beehive of human activity.  Tens of thousands of people work and shop there every day.  People also go to doctor appointments and dentist appointments and physical therapy appointments in the district every day, and no one ever takes notice of all those comings and goings.

And no one, I predict, will ever take much notice of people getting their medical marijuana prescriptions filled in the district after the first few days that Patriot Care is open for business and the news reporters and camera persons for the TV stations go away.  The great unknown in this deal is  certain to wind up as a great yawn.

Memo to the Downtown Boston Business Improvement District: Stop chasing phantoms on Milk Street.


UPDATE: On Tuesday, August 4, the Boston Zoning Board of Appeals voted to grant conditional approval to Patriot Care Corp. to open a marijuana dispensary at 21 Milk St.  A spokesman for the Massachusetts Patient Advocacy Alliance said afterwards: "This sends a message across the state that the medical marijuana group can be integrated into the community helpfully, and that it's a compassionate medical service."

Question on 'Another Agenda' Made Senate Debate on Tax Credit Crackle

“What else is going on here?”

That’s what Bruce Tarr of Gloucester kept asking his Massachusetts Senate colleagues on the afternoon of Tuesday, May 19.

He was arguing against an amendment to the new FY 2016 state budget that would, one, increase the Earned Income Tax Credit (“tax credit”) for low-income working families, and, two, pay for that increase by delaying a voter-mandated reduction in the state income tax rate. 

(On January 1, 2016, the income tax rate is scheduled to decrease from 5.15% to 5.1%, one more step in a series of cuts that will ultimately bring the rate to 5%.  Fifteen years ago, voters approved a statewide ballot question calling for the rate to drop from 5.95%, where it was in the year 2000, to 5%.  In implementing the cut, the legislature opted to do it in small increments, which are tied to the overall performance of the Massachusetts economy.)

Tarr, Minority Republican Leader of the Senate, is a big believer in increasing the tax credit.  He just hated the idea of linking that action to a delay in cutting the income tax.

“Can we do this (hike the tax credit) without contravening the will of the voters?” he asked.  “The answer is yes.  So you have to ask yourself: What else is going on here?  If we have the available funds and we want to respect the will of the voters, then why do we need the current proposal?”

Answering his own question, Tarr said, “This choice isn’t about low-wage earners.  It’s about trying to re-allocate things.”  [Note: All quotations in this post are taken from the State House News Service account of the May 19 Senate proceedings.]

The budget amendment in contention at that point was sponsored by Michael Rodrigues of Westport, Senate co-chair of the Joint Committee on Revenue, and it consisted of two parts.  The first would increase the tax credit immediately by 50%, putting approximately $500 into the pockets of the average Massachusetts resident who qualifies for the credit; the second would increase the personal exemption, household exemption, and married couples’ exemption available to Massachusetts taxpayers when they file their state income taxes.

Defending the amendment, Rodrigues emphasized that “we are providing the whole tax cut,” meaning the equivalent of the cut via higher income tax exemptions.  Rodrigues said, “No taxpayer will pay more (under the proposed amendment).  In fact, every taxpayer will pay less even if they don’t qualify for the EITC (tax credit)…This isn’t a welfare supplement.  These are hardworking people.”

Tarr responded, in part, “We all want to help low-wage earners.  This is not a subject of dispute.  The EITC is one of the best ways to do that.  There must be something else going on here, and we’ve just begun to hear what that is…If we lower the income tax rate, it will lower what we collect going forward, but the exemption is a fixed-dollar amount.  This means every year we collect 5.15% and we have a fixed personal exemption.  Many want to continue to reap the benefit of a higher (income tax) rate.  People say no one will pay more in 2015.  That’s probably true.  But everyone will continue to pay at the higher rate into perpetuity.   There’s more to what’s going on here than trying to help low-wage earners.  This is about protecting a revenue source.”

Just before the debate on the Rodrigues amendment, the Senate had rejected an alternative amendment sponsored by Tarr, which would have increased the tax credit by 100% over a three-year period.  The Tarr amendment did not offer a specific budget source for making up for the shortfall that would result from a 100% increase.  The assumption was the money would have to come from the state’s general fund. 

Senator Ben Downing of Pittsfield considered that aspect of the amendment a fatal weakness.  Said Downing, “…in this chamber, members of both the minority party and the majority party have extolled the financial acumen of the current resident of the corner office and have said for good reason that Governor Baker has a deserved reputation as a financial manager.  As someone with that reputation, he didn’t propose doubling the EITC without paying for it.  The principle of having something paid for is something he recognized.  His record is worth considering and noting before dismissing the need for connecting the (reduction in the) EITC to a revenue stream.” (Baker came out early in favor of an increase in the Earned Income Tax Credit and proposed paying for it by repealing the tax credit given to movie and TV show producers who film projects in Massachusetts.)

Downing continued, “There may be strong disagreement about that, but I don’t think we ought to shy away from discussions and debates about fairness.  The status quo is making a decision, and what it (the status quo) has been doing is widening the gap in our economy.  Fairness matters.  This (the Rodrigues amendment) gets us closer to fairness.  It (tax credit hike) ought to be paid for.”

The best part of the discussion on increasing and on paying for the tax credit was the strong feelings it stirred in senators over wages and economic fairness.

For example, Marc Pacheco of Taunton said that, since the reduction of the income tax rate was ordered by voters in 2000 and implemented in stages during the intervening years, “We have seen income inequality, the gap (between rich and poor) that was out there 15 years ago, increase exponentially…The top 1% receive 25% of the benefit (of reducing the income tax rate).  And the top 20% receive 67% of the benefit…Talk about fairness!  Talk about equity!  That’s what this proposal tries to do: start heading us in the right direction through a tax policy that is fair, (and) fairer than we have now.”

Dan Wolf of Harwich said, “This economy has become out of balance.  I consider this amendment as the beginning of a dialogue on how we change that trend.  This (increasing the tax credit) is one small step to reverse that direction.”

The Senate chair of Ways and Means, Karen Spilka of Ashland, said, “I feel compelled to repeat the quotation that I started with at the beginning of the budget debate: ‘It is a glory to speak for those who have no voice, to remember those who are forgotten.’  That was stated by Senator Edward M. Kennedy in August of 1980.  I believe that, in passing this amendment, we are fulfilling the words of Senator Kennedy.  The EITC is the most effective anti-poverty measure.  This will help working families across our Commonwealth.”

Vinny deMacedo, a longtime Republican member of the House from Plymouth who just moved up to the Senate, taking the seat of recently retired Senate President Therese Murray, said, “We talk about speaking for people without a voice, but we can’t take the individuals who voted (for reducing the income tax in 2000) and say, ‘You don’t have a voice now.’  Our (Republicans’) intent is not to violate the will of the voters.  I get what you (Democrats) are trying to do.  It’s commendable and it’s creative, but I also think it sends the wrong message.”

James Eldridge of Acton said, “…this is a moment for the Senate to reverse a 25-year trend where we’ve paid for things with a regressive tax policy…This is a reverse of about 25 years of tax votes by the legislature…There is no more successful anti-poverty tool than the Earned Income Tax Credit.”

John Keenan of Quincy, who said he wasn’t planning to speak on the amendment but felt he had to as the debate wore on, went straight for the Bruce Tarr question: What else is going on here?  His answer was anything but coy.

“Another agenda?” said Keenan.  “I think there is another agenda here.  It is about revenue preservation.  We’ve given up over $3 billion since we started the downward track on our income tax rates (in 2000).  I think that’s something we should focus on. 

“Since 2008, you’ve seen what’s happened to every one of our (state) budgets: any increase in revenue has gone to health care costs.  So is there another agenda?...Let’s not be ashamed to say there is.”

On May 19, Tarr did not succeed in blocking the Rodrigues amendment.  The final Senate version of the state budget for Fiscal Year 2016 (July 1, 2015-June 30, 2016) contained a 50% increase in the Earned Income Tax Credit funded by a delay in the January 1 income tax rate reduction. 

Tarr’s position, however, ultimately carried the day: there will be no delay in cutting the income tax. 

A House-Senate budget conference committee, assigned to work out the differences between the budgets passed by each branch, produced a unified budget earlier this month that contains a provision increasing the Earned Income Tax Credit by 50% and paying for the increase by repealing a tax deduction for corporations.  That unified budget was quickly adopted by both branches and is now before the governor.  Worth noting is that it did not include the increase in income tax exemptions favored by a majority of the Senate.

Tales such as this, most of which never lodge in the memories of voters -- if ever they even catch the attention of voters for a passing moment or two -- constitute vindication in a legislative body. 

Senate Minority Leader Bruce Tarr can take a bow. 

So, too, can House leaders, more conservative than their Senate counterparts, who dug their heels in against a delay in lowering the income tax rate during an unusually long and trying budget conference process.

 

House Dems Turn Argument Lost by Senate Republicans into Win at the End

Here’s one way to think of the controversy over how the state should fund an increase in the Earned Income Tax Credit (“tax credit”), a benefit for low-income working families: the Minority Republican Leader of the Massachusetts Senate lost the battle but won the war because he had many allies-of-the-moment in the Democrat-dominated House of Representatives, and none bigger than the Speaker of the House.

Back in May, Minority Leader Bruce Tarr of Gloucester attempted unsuccessfully to persuade a majority of his colleagues not to fund an increase in the tax credit by postponing a scheduled January 1, 2016, reduction in the state income tax rate from 5.15% to 5.1%. 

The Minority Leader favors increasing the tax credit but staunchly opposes linking the increase to the timing of a reduction in the income tax rate.  The reduction was mandated by voters in a statewide referendum back in the year 2000, he emphasized, and ought not to be tampered with.

Tarr’s recent activities in this regard centered on two proposed amendments to the Senate version of FY 2016 state budget. 

The first amendment, sponsored by Tarr himself, would have increased the tax credit by 100% over a three-year period. 

The second, sponsored by Michael Rodrigues of Westport, Senate co-chair of the Joint Committee on Revenue, would have increased the tax credit by 50%, but done so immediately...and it would have erased the budget shortfall resulting from that increase by putting off the scheduled reduction in the income tax rate. 

The Senate rejected the first amendment and adopted the second.

Eight senators voted for the first amendment and 32 voted against.  Of the eight on the losing side, two were Democrats: Joan Lovely of Salem and Dan Wolf of Harwich

Twenty-nine senators, all Democrats, voted for the second amendment.  Eleven voted against, including five Democrats: Eileen Donoghue of Lowell, Jennifer Flanagan of Leominster, Anne Gobi of Spencer, Michael Moore of Millbury and James Timilty of Walpole.

There can be no doubt that those votes constituted a major policy development in the upper branch.  The Senate declared, boldly, its intent to help some of the most hard-pressed citizens of the Commonwealth by delaying a tax cut for all taxpayers.  

Interestingly, this development did not originate in Senate Ways & Means, the nearly all-powerful budget-writing committee.  It erupted, rather, during the budget amendment process, a kind of semi-free-for-all that occurs after Ways & Means has finished its version of the upcoming year’s budget.

This was definitely a win for Senator Rodrigues, long one of the quiet dynamos under the dome.

[It would be a serious omission if I failed to note that the Rodrigues amendment included a provision to increase the personal/household/married couples’ exemptions available to taxpayers when filing their state income taxes, which made it possible for Rodrigues to plausibly assert, “We are providing the whole tax cut (intended by the 5.15%-to-5.1% reduction) in the form of tax relief (via higher exemptions).  No taxpayer will pay more.  In fact, every taxpayer will pay less, even if you don’t qualify for the EITC (Earned Income Tax Credit).”]

A win for Rodrigues it was, albeit a preliminary win...

The state budget is a beast produced by three strands of DNA, one each contributed by the governor, House and Senate.  The Rodrigues amendment ensured only that the Senate strand would have a higher tax credit funded by a delay in reducing the income tax rate.

A legislative conference committee appointed to work out the differences between the House and Senate versions of the budget would have the final say on whether that strand showed up in the final budget, The Beast.

When that conference committee reported out a final budget this week, it contained an increase in the tax credit -- an increase funded by repealing a scheduled tax break for corporations rather than delaying the reduction in the income tax rate.

It is only sensible to infer that the Senate conferees pushed to include the wording of the Rodrigues amendment in the final budget, and that only a more strenuous counter-push from the House conferees prevented that from happening.  The House had to be more dug in on the issue than the Senate.

Both branches quickly endorsed the conference committee budget, totaling $38.1 billion, and sent it to the governor for his mandatory review.

In a TV interview last night, House Speaker Robert DeLeo of Winthrop said his biggest disappointment with this year’s budget process “would have been the fact relative to the freezing of the income tax in terms of how we would have funded the Earned Income Tax Credit.”

Some where, Bruce Tar was smiling.

NEXT: Considering the Strong Sentiments Unleashed in Debate on Tax Credits

Senate Dems Get High Marks for Boldness on Earned Income Tax Credit

The more one thinks about it, the more one is struck by the strategic audacity of Mass. Senate Democrats in using the annual spring deliberations over a new state budget to push for an increase in the Earned Income Tax Credit ("tax credit"), a mechanism allowing low-income working families to significantly reduce the state income taxes they pay.  

Dems especially shook things up by committing the Senate to postponing a scheduled decrease in the state income tax rate in order to pay for the higher tax credit.

Today, two days into Fiscal Year 2016 (7/1/15-6/30/16), we are awaiting the final legislative version of the FY 16 state budget from a House-Senate conference committee.  It appears that the disagreement between the branches over how and when to move forward on the tax credit increase, and on how to pay for the increase, is a major reason why, for the first time in six years, the legislature has not met a June 30 deadline for producing a new budget, and why state government is now functioning under an interim, stopgap, one-month budget.

In May, the Senate adopted an amendment to its version of the budget calling for a 50% increase in the tax credit.  By contrast, in April, the House chose not to do anything on the tax credit when crafting its version of the budget.  (Most members of the House favor hiking the tax credit; they just didn't see the budget as the vehicle for accomplishing it.) 

A tax credit represents a dollar-for-dollar reduction in one’s taxes.  For example, if a wage earner qualified for a $200 tax credit and was otherwise liable to pay $1,000, she would pay $800 instead.  So, if the state raised the tax credit limit by 50%, she’d pay $700.

Should the full legislature vote to raise the tax credit by 50%, and should the governor sign the increase into law, the state would stand to forfeit an estimated $145 million in income tax revenue the first year the higher tax credit is in effect. That amount would be in addition to revenue already foregone due to this particular tax credit.

Approximately 400,000 low-income families qualify for this benefit. If a 50% increase in the tax credit becomes law, each of those 400,000 families would, on average, get an additional $500 back on their taxes every year.

A digression on the budget-making process seems in order at this point…

Each branch of the legislature constructs a separate version of the new budget.  Once the Senate completes its version, a six member House-Senate conference committee is set up to work out the difference between the versions and to offer up a final, unified budget.  Almost always, this unified budget is quickly approved by the House and Senate.  Then the governor gets his hands on it.  With the assistance of his staff and cabinet, the governor goes through the budget, line by line and section  by section, vetoing the parts he disapproves of.  He then sends it back to the legislature, which reviews everything the governor has done and decides whether to accept the vetoes or to conduct override votes on them.  At least a two-thirds majority in both branches must vote to override any and each vetoed item for that item to remain in the budget, that is, to become law.  The override votes comprise the final step in the months-long process. 

...In the budget conference committee, the big question now lurking over the tax credit actually consists of three separate but related questions: 

First, is the House, as the originator by state constitution of all tax measures, willing to abandon its position that the budget is not the proper vehicle this year for increasing the tax credit?

Second, will the House go along with the Senate’s controversial approach to funding the increase by delaying a voter-mandated reduction in the state income tax rate from 5.15% to 5.1%, a reduction now set for implementation on Jan. 1, 2016?  (Remember, the increase would put a $145 million hole in the budget, a gap that must be filled with revenue from some other source to keep the overall $38-billion-plus state budget in balance.)  

Third, if the House accedes to the Senate on its approach to enacting and paying for the tax credit hike, will the governor, even though he strongly supports the hike, veto the budget section accomplishing that because he does not want to thwart the will of the voters?

Hard to believe the issue of lowering the income tax has been around for 15 years. 

It was in the year 2000 that voters approved a statewide ballot question requiring a gradual lowering of the income tax rate from 5.95% to 5%.  We’ve been hearing the words “voter-mandated reduction in the income tax” so long we've forgotten when we first heard them.

In 2002, the state was in a budget crunch and the legislature decided to stop, and to freeze, at 5.3%, the ongoing fall in the income tax rate.  The legislature also set up then a system of annual benchmarks concerning overall growth of state revenue.  Under that system, when benchmarks were hit -- as they have been hit in recent years -- the rate would be lowered in increments of .05%, per achieved benchmark.  That’s how we got to the current rate of 5.15%, and how we were on track to go to 5.1% in January: revenue has been growing at a good clip in recent years.

My guess is the conference committee will not include the tax credit increase in the final legislative budget because House leaders are not happy the Senate dealt with the issue this way. 

Don't forget that the House attempted, unsuccessfully, to get the state Supreme Judicial Court to rule that the Senate had overstepped its bounds when it tinkered with the income tax rate during the budget process.  That defeat has likely inspired the House to dig its heels in deeper on the subject now.

If it turns out I'm wrong, that the House conferees do accede to their Senate counterparts, I suspect the governor would veto the increase in the final legislative budget, despite having come out early in support of an increase.  He’ll veto it because:

One, he prefers to eliminate the state’s film tax credit as a way of covering the gap created by augmenting the Earned Income Tax Credit.

Two, he has always supported reducing the income tax rate to 5% and will not countenance a detour on the way to 5%.  (One has to wonder if the Senate Democrats didn't undertake this maneuver in part to put the governor into an uncomfortable spot -- to force him into a high-profile choice between a higher Earned Income Tax Credit and a reduction in the income tax?)

Three, he opposes all tax increases.

Four, he will not want to contravene the 2000 verdict of the voters on lowering the income tax, even though a plausible argument can be made that putting off an income tax cut is not the same as increasing the income tax.

That argument is, almost certainly, a non-starter with Charlie Baker.

NEXT:  House Dems Foil Senate Dems in Budget Conference Committee.