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MA Taxpayer Group Says Closing Loopholes Won’t Boost Revenues

Monday, November 19, 2012

 

For all the talk on Beacon Hill about eliminating loopholes and tax breaks for corporations, most of the state's tax expenditures benefit individuals and have been in place for years.

The Commonwealth's original estimate of tax expenditures, or the amount of revenue the state foregoes because of exceptions to tax laws, was $26.6 billion for fiscal year 2013. That figure exceeded the state's projected tax revenue collections for the entire year.

However, legislation was signed in July of this year changing the way tax expenditures are reported, and according to analysis by the Massachusetts Taxpayers Foundation (MTF), the new reporting will cut the FY2013 estimate in half to just $13.4 billion.

While commonly thought of as incentives, tax breaks, or loopholes that benefit corporations, the Foundation’s analysis shows that billions of the state’s so-called tax expenditures are merely the result of long-standing tax policies and practices, mostly benefitting individuals.

In the revised budget, personal income expenditures account for $6.8 billion or approximately half of the total. Sales and use expenditures of $5.2 billion are 39 percent of the total, while corporate expenditures account for the smallest share at $1.3 billion, or 10 percent.

Yet in the MTF's report, "State Tax Expenditures: Less Than Meets The Eye," even the revised number of $13.4 billion was found to be overstated by more than $5 billion.

"The title captures the essence of it," said MTF President. Michael Widmer.

"There's been a lot of talk about these expensive tax expenditures and loopholes and that if we just closed these so-called loopholes we'd be able to raise a lot of money for the Commonwealth."

Widmer said tax expenditures are an issue that until now has been surrounded by more sloganeering than facts, a state of affairs the MTF hopes to combat with its newest report.

According to the MTF, the revised FY2013 estimate includes approximately $4.6 billion of questionable tax expenditures. Most of that total, around $4 billion, is the result of the state conforming with the federal tax code, expenditures that are rarely included in other states’ totals. Another $600 million stems from corporate income tax expenditures that are established parts of the state's tax structure, not exceptions.

The MTF report also noted that more than $1.1 billion of expenditures are for items that are taxed through another means, including the sales tax exemptions for gasoline, hotel rooms, and alcohol, as well as the corporate income tax exemption for real estate taxed by municipalities rather than the state.

Many tax expenditures are widely accepted features of the state’s tax structure, most of which have been in place for decades. For example, the sales tax exemptions for food, clothing, and medicine account for $1.4 billion.

"As fiscal leaders in the state have looked more closely at the tax expenditure budget, enthusiasm for identifying tax expenditures as way to raise revneue has cooled," Widmer said.

One area that the MTF is currently exploring for raising additional revenue is transportation.

"We think that the legislature should seriously consider a package that identifies additional transportation revenues but also includes proposals that would improve the performance of the transportation agencies," said Widmer.

Governor Deval Patrick is expected to call on lawmakers to implement a transportation tax hike when they reconvene on Beacon Hill in January.

The Commonwealth's tax collection for October of this year was $48 million less than in October 2011, and Massachusetts is currently $256 million behind its projected tax revenue collection since the start of the fiscal year on July 1. 

 

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