Report: MA Residents Face 6th Highest Tax Burden
Saturday, January 26, 2013
The report ranked states by the amount of debt each state has accrued, spread out over each taxpayer.
According to the Institute for Truth in Accounting, Mass taxpayers are responsible for a burden of $24,100 each. The Bay State’s neighbor to the south, Connecticut, topped the charts with $50,900 per taxpayer.
Founder & CEO of the Institute for Truth in Accounting, Sheila Weinberg, said that due to accrued pension and retirement payments over the years to offset other costs, “The state is in a bad financial state.”
“These shortfalls represents compensation and other costs incurred in prior years that should have been paid in those prior years. Instead these costs have been shifted to future taxpayers,” their report states.
The group also published their findings on how tardy each state was in releasing their financial reports. Massachusetts was tardy on releasing financial reports, and took 202 days to release them. The report found three excessively tardy states, with Hawaii topping the list at 469 days.
Weinberg said that the state’s financial shortfalls bypass the federal law requiring a balanced budget because states are not required to pay pensions upfront, but choose to offset the cost onto future taxpayers.
“States don’t have to set money aside to pay pensions, but in Massachusetts they do set some aside for state employees. But for fiscal year 2011, they should have placed $471 million aside, but only set aside $296 million,” she said.
She added that for every dollar they have promised to pay, they are only paying 63 cents into the plan.
“It’s kind of like a credit card bill or a statement from the bank, when they tell you to pay your minimum payments of 'X' amount. Instead you only send 63 percent,” Weinberg said.
Pension and Politics
Weinberg said that states are using an “antiquated method” to calculate their budgets, allowing them to hide costs in pension and retirement funding.
“They don’t need to include all of their costs in the budget, and the largest parts that are not are compensation costs,” she said. “Those compensation costs include pension and retirement benefits that they earn the right to receive and are an expense every year, but because they don’t have to write the check that year, they accumulate each year, and the state is in bad financial state.”
“Right now the pension plan in Massachusetts is only paying 57 cents for every dollar for pension they promised, and that number is low,” she said. “They’re pretending they’re going to earn 8.25 percent on their investments.”
Staying in Office
Politics also comes into play, Weinberg said, as politicians use this method to make their budgets more appealing to other officeholders and their constituents.
“States have balanced budget requirements, and if I’m a politician and I’m elected, and my employees say that they want higher salaries, the paychecks have to go in. And that balanced budget requirement gets in the way,” she said. “If I increase those, I’m going to either have to raise taxes or cut funding, and neither of those options is particularly popular.”
To bypass these unpopular moves, Weinberg said that politicians will chose to take it out of pension and retirement, which do not have to be paid up front.
Weinberg said that this is a means of “artificially keep your taxes down,” but that it harms the whole process.
“It diminishes democracy because it takes away accountability,” she said. “People are getting more government than they pay for. You’re a little happier, and if you knew how much the government really cost, you’d be less happy with them.”
In reality, she said, it’s used as something to keep them in office.
The Massachusetts Budget and Policy Center said that the group’s report might not be showing all there is behind the numbers, suggesting that a look at the debt as a percentage of GDP would be more revealing. According to a spokesperson from the group, a per-capita look could be skewed if the state was particularly wealthy and could potentially handle a larger amount of debt.
MassBudget also argued that these expenses were future payments, and are not comparable to operating costs.
Weinberg defended their numbers, however, saying “We do a ranking per taxpayer, so Massachusetts is ranked in our 2011 study with a per taxpayer rate of $24,100 dollars.”
When compared on the basis of debt as a percentage of GDP, Mass was still one of the top states.
MassBudget also said that the figures would not reflect major pension reform passed in recent years. The 2014 proposals recently released also deal with retirement funding and raise taxes, which is one way that Weinberg says states can begin to live within their budgets.
Weinberg says that states need to step up and start treating these costs as real debt, instead of shifting the payment onto future taxpayers.
“Some say not to worry about it now, but no, you’re incurring those costs right now. If you did not offer the employees benefits, you’d have to pay them more right now. Therefore they are current costs and should be included in the budget,” she said.
She said that states like Massachusetts need to learn to live within the intent of their balanced budget law.
“They need to use true numbers,” Weinberg said. “People have to look at this, in Massachusetts, last number is $55.7 billion short – that’s the number currently needing to be paid, thanks to pension and outstanding bills. It’s a cash shortfall. In order to get cash, you need to either bring more in or take less out.”
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