Massachusetts Lawmakers Examine “Fairness” of State Tax Code
Monday, March 03, 2014
Highlights of the commission's draft report last week included the institution of a graduated income tax — a change necessitating a constitutional amendment, and one that has been defeated in Massachusetts before.
Commission looks at who pays, how much
Established by the Legislature last year, the bipartisan commission was charged with analyzing and focusing on the equity of current tax policies. The 15-member body found the “overall tax system in Massachusetts is regressive, meaning middle- and low-income taxpayers pay a larger share of their income in taxes than high-income taxpayers.”
The commission reports the share paid in state and local income taxes was inversely proportional to households' incomes: the bottom 20 percent of households paid 10 percent while the top 1 percent of earners paid 4.9 percent.
That regressivity is largely because of property and sales tax, areas where lower income households spend a greater share of their income. While Massachusetts has a flat personal income tax, various exemptions, deductions, and credits create some relief for lower wage workers.
Pushback against graduated income tax
Responding to the commission's recommendations, Barbara Anderson with Citizens for Limited Taxation called the graduated income tax an attempt to “rig the Massachusetts Constitution in favor of easy income tax hiking.”
“A graduated income tax is a tool to divide and conquer taxpayers, hiking taxes one bracket at a time,” said Anderson, CLT's executive director. “By targeting a single bracket, enough critical mass will never be reached for effective tax resistance. And, without legislative cooperation, a constitutional amendment is forever.”
Anderson's organization was founded in 1974 to oppose a graduated income tax proposal that failed at the polls in 1976.
Because of a 1915 amendment to the state's Constitution requiring a tax be “levied at a uniform rate throughout the commonwealth upon incomes derived from the same class of property,” a graduated income tax change necessitates a public referendum.
The proposal has been voted down five times: in 1962, 1968, 1972, 1976, and 1994, each time by at least a two to one margin.
Massachusetts in the minority of flat tax states
Two-thirds of states have a progressive income tax today according to a recent tally by the Federation of Tax Administrators, looking at state rates at the beginning of this year. Eight states have a flat income tax versus 33 (plus the District of Columbia) that have separate rates based on income brackets. (Seven have no income tax, while two only tax dividends and interest income).
While Massachusetts currently has a 5.2 percent income tax on paper, that percentage is not paid at any income level because of exemptions, deductions, and credits: The bottom 20 percent (earning less than $21,000) contribute 0.7 percent of their income toward state and local taxes while top earners pay 4.5 percent.
Members of the commission voted individually on each proposal at its final meeting last week.
Michael Widmer, a member of the committee and president of the Massachusetts Taxpayers Foundation, voted against the graduated income tax measure, saying it would undercut the creation of jobs and be counterproductive toward the goal of a more competitive economy.
A majority supported a package of reforms to reduce the tax burden on low- and middle-income households (which included an increase to the state's earned income tax credit, an expansion of the property tax circuit breaker to include low-income households, and a doubling of current exemptions — all offset by an increase in the flat income tax rate).
Members of the commission also supported an online sales tax, meanwhile, that would seek to collect revenue from all Internet sales should Congress implement that requirement.
Some of the commission's recommendations echo proposals by Gov. Deval Patrick last year, including an increase in the income tax and personal exemptions, which were not acted upon in the Legislature.
Taxes a small percentage of cost of business
Gregory Sullivan, a member of the commission and research director of the Pioneer Institute, recommended studying ways to increase economic competitiveness through an expanded research and development tax credit and lower corporate tax rate, but that proposal was not picked up.
The commission reported the average cost of state and local taxes in Massachusetts at 2 percent of the total cost of business, while employee compensation accounts for between 40 and 80 percent of expenses. “Therefore, a simple reduction in the corporate tax rate is unlikely to lead to significant change in the Commonwealth,” the report concludes.
Related Slideshow: Central MA Unemployment Rates #72 - #1
Here are the unemployment statistics for each town in Central Mass, ranked from least to most-
- 38 Studios Insider Gets $650k in New Film Tax Credits
- Central Mass Towns Miss Out on Millions of Tax Revenue
- E-Mails Reveal 38 Studios’ Desperate Attempts to Secure Tax Credits
- Highest Taxed Communities in Central Mass for 2013
- Move To Recall Controversial ‘Tech Tax’ Hits Central Massachusetts
- NEW: Gov. Patrick Announces Tax Collection Deal With Amazon
- NEW: State Tax Collections Come in Below Benchmark
- Report: MA Residents Face 6th Highest Tax Burden
- Smart Benefits: Taxpayers Could Get Stung By Local Healthcare Cost
- Taxpayers Spend $57 Million on Affordable Housing Projects
- Worcester Could Face Flood of Abatement Requests After Tax Bills
- Arthur C. Schaper: MA GOP Takes Down Tax (Dems, Not So Much)
- Central Mass. Stores Prepare for Boost This Tax-Free Weekend
- Fiscal Alliance Says New Taxes Will Make MA Less Competitive
- Historic Revival for Tax Credits
- MA Property Taxes Among Nation’s Worst For Businesses
- NEW: Brown Ad Says Warren Tax Plan Would Cost MA 17,400 Jobs
- NEW: Mass. GOP Lawmakers to Hold Tech Tax Repeal Press Conference
- NEW: UMass Med to Seek Taxable Tenants For Biotech Park
- Report: Online Retailers Cost MA $387 Million in Tax Revenue
- Smart Benefits: Will You Be Affected by the New Medicare Tax?
- The Aftermath of the 2010 Tax Battle
- Worcester Looks to Lure Developers With Tax Breaks
- Arthur Schaper: Mass GOP Takes On Forever Gas Tax
- 2400 Property Owners File For Tax Abatements
- Fiscal Cliff Could Mean $2,200 More in Taxes for Worcester Families
- How Worcester Loses Out on $20 Million in Property Taxes Annually
- MA Taxpayer Group Says Closing Loopholes Won’t Boost Revenues
- NEW: Brown Demands Warren Repay Taxpayers for ‘Welfare Mailers’
- NEW: Mass. Republican Frustrated Over Sales Tax Rollback Defeat
- NEW: Warren Takes Aim at Romney’s Tax Plan on the Today Show
- Rob Eno: A Vote for Warren is a Vote for More Taxes
- State Meal and Beverage Tax Revenues Up
- Tim Cahill: Brown vs Warren and The Great Tax Reveal
- Worcester Police Car Wash Tab Soaks Taxpayers for $24K
- BREAKING NEWS: State Approves $1.6M Tax Break for Hasbro
- 38 Studios Bankruptcy: Executives Say Tax Credits Could Have Saved Company
- FlyORH: Linear Air CEO William Herp Talks Air Taxis
- INVESTIGATION: Worcester’s Top Tax Offenders
- MA Voters Strongly Oppose Gas Tax Hike
- NEW: Businesses Urged to ‘Show Up’ in Force for Tax Rate Hearing
- NEW: Massachusetts Legislature Passes Sales Tax Holiday Bill
- NEW: Warren Takes Offensive Ahead of Brown Tax Speech
- Smart Benefits: 5 New Healthcare Reform Taxes
- State Tax Groups Find Flaws in Governor’s New Budget
- Top Taxpaying Towns in Central Mass
- Worcester State University Offers Free Tax Preparation
- Bill to Prevent Lost Revenue from Tax Credits
- Changes to Worcester’s Tax Classification Will Bury Small Businesses
- Good Is Good: Is It Time For An Obesity Tax?
- LEGAL MATTERS: How To Stay Out of Tax Trouble
- Mass Dems Slam Scott Brown for Tax Plan Vote
- NEW: Chamber and Community Groups Join Forces on Worcester Taxes
- NEW: Massachusetts State Rep. Candidate Perro Says No Tax Hikes
- NY Times Corp Leaves Taxpayer on the Hook for Contamination in Worcester
- Smart Benefits: Low Exchange Enrollment Means More Taxpayer Costs
- Tax Refunds UP 12% Across Mass.
- United Way of Central MA Announces Free Tax Preparation
- Worcester Tax Rate Showdown Pits Businesses Against Residents
- Brown Warns Voters Tax Hike Will Cost Mass 100,000 Jobs
- City Bracing For Flood Of Tax Appeals
- Governor’s Office Urges Patience With Tax Refunds
- Leonardo Angiulo: How To Survive Tax Day (and Stay Out of Jail)
- Mass. Soda + Candy Tax Would Raise Estimated $57M in Revenue
- NEW: Claros Opposed to Tax Package
- NEW: Massachusetts Taxpayer Group Pledges to Block Rising Gas Tax
- Smart Benefits: More Taxes, Less Pay
- Tax Time! Should you contribute to a Roth IRA?
- Warren Supports Harry Reid on Romney Tax Returns
- Worcester’s Business Tax Breaks Create Jobs - and ‘Inequity’
- Business Groups Say Chafee Taxes a Job-Killer
- Connected Lawyer Pledged Tax Credits Before 38 Studios Was Approved
- Grace Ross: When Tax Breaks Hurt Job Creation
- MA Cigarette Tax Hike Could Boost Illicit Sales
- Massachusetts Cigarette Tax Top 10 In US–Ranking
- NEW: Elizabeth Warren Releases Tax Returns
- NEW: RI to Introduce Bill for Marijuana Regulation + Taxation
- Proposed Sales Tax Holiday in Rhode Island
- Smart Benefits: New Wellness Tax Credits for MA Employers
- Taxes and Red Tape Stagnate MA Building Permits
- Warren on Tax Returns: Top Stories in Central Mass in 2012
- Worcester’s Contentious Tax Debate
- Central MA Med-Tech Leaders See Big Job Cuts From Obamacare Tax
- Councilor Lukes: Council Fails to Protect Taxpayer in “Wedding-Gate”
- Hey Rhode Island, Here Are 3 Tax Time Tips
- MA Group Says Governor’s Transportation Plan “Too Taxing”
- Massachusetts Tech Tax Repealed
- NEW: Gov Patrick Calls for Income Tax Hike, Sales Tax Cut
- NEW: Senator Brown Releases Tax Returns
- Repeal of Mass’ Gas Tax: The $100 Million Question
- Smart Benefits: Survey Reveals Employees and Taxpayers Hit Hardest
- Taxpayers Demand Accountability for T&G Cleanup
- Worcester Businesses That Pay the Most Taxes