Mass Budget and Policy Center Reports:
Today the U.S. Census Bureau released its annual update of State and Local Government Finances, providing national data for Fiscal Year 2007. The amount of state and local taxes paid in Massachusetts as a share of total personal income fell from 10.6 percent in 2006 to 10.5 percent in 2007. Massachusetts dropped in rank from 35th among all states in 2006 to 38th in 2007 (including the District of Columbia).
The Center adds: “Measuring taxes as a share of total personal income allows for a meaningful comparison among states.”
Separately, here is a list of the richest states from CNN.
Good news for Governor Patrick, among others. In fact, nice work all around, Massachusetts: just a few more new businesses and a bit of outperforming from current employers and we can knock off Hawaii at #4.
One question I have is does the data include fees? And which states are getting more federal money? I would be very interested to see the chart from your link put next to one that shows average and median amount spent on tax in real dollars and budget relative to population. Also separating states based on their economies would provide a more meaningful comparison.
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p>It’s an interesting report, but is very narrow in scope and seems somewhat meaningless without comparing it to other data. for instance MA ranked 7th in highest cost of living for 2nd quarter 2009, whereas Alaska (who by far spent the highest % on taxes) is at 36, but you never would have guessed that from the report.
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p>Not being an economist myself I would like to see a better analysis of what this data means in the context of other figures and relative to our past and future, as I feel this report says very little standing on its own.
Which means you line up the 9 people in the room, and the 5th person’s income is the median.
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p>This matters because there’s lots of action on both tails that this ignores. Are the poorest 10% below the poverty line? 25%? 40%? Won’t impact median. How much are the top 0.1% earning? 1%? 10%? 25%? Won’t show up.
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p>Methinks that this chart likely shows which states have a strong middle class, with an added bonus for states where two-parent families are more common, allowing for more 1.5 or 2 income streams.
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p>Furthermore, NY isn’t on that list of top 10 for median. It wouldn’t surprise me if it was for mean (total income / population) though, due to the number of mega-incomes in NYC and LI. For median, it doesn’t matter if my family makes 100 thousand or 100 million… but you can bet it does for the mean. How many families per capita make $10+ million in NH? In NY?
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p>Lies, damn lies, and Fox News.
I think they’re dividing total tax revenue by total income, which should give a weighted average and account for high earners. The technical notes make no mention of median income and this sentence makes it pretty clear they’re talking total income:
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p>The fact that they exclude capital gains income is a big issue, however. With roughly $2 billion of capital gains tax revenue in 2007, at 12.5%, that’s $16 Billion of income that isn’t included and would likely bump us 3 or 4 spaces down.
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p>With huge cuts to essential programs, this is more evidence that we can afford a tax increase.
The second article linked (CNN Money) has graphics that posit wealth as a function of median income.
of tax burdens and definitions of income. MBPC offers a compelling point of view, but on complex issues, as stomv implies, more than one statistic is useful.
I ask because I’m wondering where the “Taxachusetts” reputation comes from. Also, just to be picky since DC is included MA is 38/51 rather than 38/50.
We should probably be moving a little higher on this list when data from the new sales tax is taken into consideration (I’m assuming it isn’t yet). However, we’ll still have comparatively low taxes compared to the nation at large.
Several people above asked great questions about the fact sheet we released yesterday. Here are some answers:
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p>Does the data include fees?
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p>No. The Census does have a measure called “total own source revenue” that does include fees. Massachusetts ranks even lower in that measure than we do in taxes, but we didn’t include it in the fact sheet because there are technical problems with comparing non-tax revenue among states since states are structured differently and provide different types of services for which they may charge fees.
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p>How high have we been?
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p>In the late 1970s Massachusetts was one of the highest tax states in the nation. Using the standard measure of state and local taxes as a percent of income, we were third highest as the chart at the link below indicates.
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p>http://www.massbudget.org/cust…
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p>Between 1977 and 2007 state and local taxes as a share of income fell more in Massachusetts than in any other state.
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p>Is the recent sales tax increase taken into affect?
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p>The data is from 2007, before the sales tax increase. There is no more recent national data on state and local taxes. I have copied below the paragraph from the fact sheet that addresses this issue.
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p>Since 2007, Massachusetts has increased several types of state taxes. For example, MassBudget estimates that the increases enacted in 2009 as part of the FY2010 budget will raise an additional $884 million annually. Looking at today’s Census data, we can see that Massachusetts’ level of taxation (10.45 percent) was well below the national average (11.27 percent) in 2007. Had Massachusetts taxed its residents at the national average, the state would have raised an additional $2.5 billion in that fiscal year. Therefore, while nationwide data more current than 2007 are not available, it is likely that Massachusetts’ ranking still remains well below the U.S. average, even given Massachusetts’ recent tax increases. This is especially likely given that 10 other states enacted their own tax increases in 2007 and 2008 in response to widespread budget gaps. With ongoing revenue shortfalls, 30 states have enacted tax increases in 2009.
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p>Noah Berger
Executive Director
Massachusetts Budget and Policy Center
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would be very, very nice. can’t complain that it’s high and $2.5 billion would solve a lot of problems.
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p>thanks for answering those questions.
I think the chart should also include federal income taxes as a percentage of total state income. My gut feeling is the percentage total (both federal and state) tax burden on Massachusetts residents will be higher than the average state.
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p>Really? So how come we’re in the fiscal mess we’re in? Yeah, sure, part of it is universal, with the economic downturn and all that. But a large part of it is because we don’t raise enough revenue to cover the expenses we, as a Commonwealth, are committed to. It was well known before the national meltdown occurred that Massachusetts had a structural deficit built into our budget. Yet, heads in the sand prevailed. So, I don’t think kudos are at all in order. Let’s recover at least some of that lost revenue opportunity. It’s nice to know we can do it and still brag about being a low-tax state!
When Deval just got into office. The governor hadn’t yet hired his friends and neighbors to six-figure jobs. And the 2009 taxes had not been increased yet. We need to take the democratic hacks off the payroll still.
If this study is showing Alaska as the highest taxed state in the US, then the study is worthless.
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p>http://www.bankrate.com/kip/it…
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p>Alaska has
no state sales tax
no state income tax (in fact residents get rebate checks)
Municipalities can charge a local sales tax ranging from 2-5%
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p>Might want to run the numbers again on this “study”.
You’re overlooking property taxes, user fees, excise taxes, gaming taxes, tire taxes and a whole host of others listed at the VERY link you so helpfully provided.
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p>Also, from your own link, municipalities are permitted to impose a sales tax ranging from 1 to 7%; though typical is 2-5%.
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p>I have to wonder if you even bothered to read the information contained on your own link.
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p>(Full disclosure- I am a former employee of MBPC and wrote a similar report for a prior year.)
but don’t all states impose these other taxes as well? I’d love to see the numbers, but given that Alaska has no state income tax (in fact people get paid rebate checks) or state sales tax, think that kind of puts them at a pretty low point to start things out. There must be some real whoppers of fees to put them at the front (high point of 7% on local sales tax in that link; ever been out to Chicagoland? – you’re looking at 13% sales tax on everything that moves).
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p>If you worked there, I’d love to see the data. Something doesn’t add up here (I wasn’t trying to “scare” anyone). I’m an actuary so I look at numbers (some good, some bad) every day; something creative has to be going on in the analysis if Alaska pops out as the highest taxed state in the Union.
I didn’t mean to come across as overly snarky, but the quotes around study set me off at the late hour.
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p>To answer your question- yes, other states do tax some of those same things, but there is wide variation both in rates and types of taxes collected.
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p>Plus, there is still the whole denominator issue. Alaska is not a particularly wealthy state, as measured by total personal income. I really believe that is what is drivingat least some of what you’re seeing in AK, in spite of not having a state income or sales tax. Keep in mind, too, that AK does have a corporate income tax. And, the total taxes collected, as used in this chart/data, includes all taxes collected in AK, which would include their hotel tax, rental car tax, etc. that are collected on tourists.
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p>(And I see Noah made mention of the extraction tax, as well. It accounts for about 24% of total collections as I read the Census data.)
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p>http://www.census.gov/govs/est… (That is state and local tax data)
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p>http://www.bea.gov/regional/spi/ (annual state personal income data)
I don’t know specific information about Alaska. My comment here is not focused on Alaska, but is a more general response to the point you’re making: In general, states with lower income taxes that make up the difference with property taxes have either a higher tax burden, lower services, or a combination of both.
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p>Look at our neighbor to the north, NH: For the most part, people I’ve known in NH pay a significantly higher proportion of their income in taxes than is normal in Massachusetts, even though they get fewer and less effective services for their money.
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p>I don’t know if that holds true on average across the whole population (and massbudget.org is broken so I can’t see what their report has to say about it), since another effect of relying on property taxes more than income taxes is that the tax burden is spread much less fairly.
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p>However, a higher income tax does not necessarily mean a higher tax burden; a lower income tax does not necessarily mean a lower tax burden. Sometimes, it can be the opposite. And “don’t all states impose those other taxes” doesn’t say to what extent they depend on those other taxes for their revenue.
Alaska is an unusual case. They have what is called a severance or extraction tax imposed on the extraction of oil and natural gas. Given the nature of their economy, this tax raises a lot of money and allows them to generate plenty of state tax revenue while keeping their other taxes low. There are a few other states (mostly coal states) that are similar.
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p>Also, one of the comments suggested that the title of the post should be 38 of 51 because the list includes DC. That’s correct.
that tax is imposed on the oil companies, not individuals (in fact, in lieu of paying state income taxes, these are actually rebated to the residents of the state). You might want to clarify your study; why don’t you separate individual taxation (income, sales, property taxes) from corporate taxation to compare and contrast.
given your Alaska comment that the data shown is measuring state and local taxes paid by individuals as well as businesses to individual income rates. So in effect high royalties paid by oil companies in Alaska skewed their numbers dramatically, when in point individuals in Alaska are minimally taxed (and actually are rebated to residents, a negative state income tax as it were).
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p>To the laymen, your study seems to represent taxation on individuals by referencing comparison to income. Since business taxes are evidently mixed in here, not sure this as compelling case for higher taxes in MA. You just don’t know given this mix and match of revenue sources.
When suggestions are made that Massachusetts increase business taxes, wags are always quick to point out that customers ultimately pay those increases through increased prices. It seems to me that the same arguments you make about not mixing business and individual tax rates when compiling an ordering like this also apply when determining whether to support or oppose a proposed tax increase. I’m happy to see an argument supporting the premise that business taxes can be increased without harming individual income rates. Perhaps we might ask ourselves whether analogous business tax revenue opportunities exist here in Massachusetts.
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p>The message that MassBudget is communicating is that in aggregate, taxes in Massachusetts are low in comparison to other states. I think this is an important message for us to remember when confronting our anti-tax crowd.
all I’m saying is that the chart as shown as Alaska as a monstrously higher proportion than the 2nd state, NY. Given the fact that Alaska has a negative state income tax (rebates from oil) and no state income tax, that is a questionable result, to put it mildly (Alaska at 18%, NY in 2nd at 11%). Something in the methodology seems off with that result.
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p>No judgments here or there on taxation levels; something intuitively makes no sense with that result. Just would like an explanation of those numbers.
I understand your concern, I don’t doubt that there may be some noise in the data.
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p>On the other hand, you’re describing a difference between apparently anomalous data for Alaska and (I gather) a more reasonable result for New York — perhaps New York should be at the top of the list (at 11%), perhaps Alaska should be at the bottom.
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p>The point of the piece, as I see it, is that Massachusetts is ranked at number 38. Maybe there’s some noise in the methodology — are you suggesting that the real number is lower than, say, 34 or 35? Are you sure the real number isn’t actually 40 or 42? It seems to me that the message is that Massachusetts is, now, nowhere near the top of the list in taxation.
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p>After three decades of relentless tax cutting (moving us from near the top in 1977 to near the bottom today), is our quality of life better or worse as a result?
just wondering if comparing total business and personal taxes to personal income only is a reasonable basis for comparison. Why not total business and personal taxes to personal income and business income? Seems like an apples and oranges comparison.
Corporate taxes are generally included when contemplating a tax increase, based on an argument that says “individuals ultimately pay corporate taxes anyway”.
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p>Suppose two states A and B have comparable total taxation and comparable total personal income. Suppose state A biased its taxes towards corporations, while state B biased its taxes towards individuals. Would you agree that state A has “lower taxes” than state B?
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p>If so, then wouldn’t the answer to the current Massachusetts revenue problem be to dramatically increase corporate taxes, perhaps while lowering individual taxes?
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p>I think states A and B are comparable, and I think this study therefore takes the correct approach.
a county sized state with extremely high electric costs, not sure if jacking up corporate rates is necessarily an option.
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p>From a resident paying the taxes, I’d agree with your analogy that State A is lower taxed to me. But again look at a map, and consider the hamstring of electricity costs. Making things worse on corporations puts our state at a greater disadvantage as they move (especially when times are not exactly stellar economically).
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p>Manufacturing jobs in MA have moved due to additional costs, electricity being one. Finance jobs can pack up in a heartbeat (look at Fidelity in RI and Kentucky).
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p>I really think we somehow have to weather this economic storm without making things worse, and hope that things return to normal with higher tax receipts through growth. Right now jacking up corporate rates isn’t going to get you anywhere if most are showing a loss on the books right now anyway.
You wrote:
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p>It seems to me that you come to the same conclusion as the authors of the study — namely, that corporate taxes need to be included with individual taxes when measuring the overall tax burden of the state.
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p>I’m not disputing your observation that raising corporate taxes will cause companies to move. Instead, I’m saying that this observation supports the methodology of the study.
I’m certainly not in disagreement that you look at combined business and personal taxes. That being said, seems a slick manuever to compare business and personal taxes to personal income. Just seems that you’re taking a numerator of Bt and Pt compared to Pi, rather than (Bt+Pt)/(Bi+Pi)?
I don’t see it as “slick”, I see it as an effort to do a state-by-state comparison and compile a ranking.
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p>For business income collected from Massachusetts residents, you’d end up double-counting the income. Ignoring accumulated wealth for a moment, the money I spend on local businesses is counted when my Pi is counted. In order to accomplish what you suggest, the researchers would have to determine business income collected from out-of-state sources. I think it would be a lot more work, and you haven’t demonstrated that it would change the results in any significant way.
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p>I think the study did the best they could with the data available to them. I think that even with perfect data, adjusted as you suggest, the resulting ranking wouldn’t change much.
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p>I don’t think it matters whether we’re number 34, 38, or 42 — we’re certainly not near the top (as we were in 1977). You said, in your initial comment, that the study is “worthless”. I think you’ve thrown the baby out with the bathwater.
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p>More importantly, I think you miss the more fundamental point. After decades of cutting taxes, and after moving Massachusetts from the top to the bottom of the list, we have not significantly improved the state’s economy. To the contrary, I submit that most Massachusetts residents live in a far worse local economy today than we did in 1977. More specifically, I think our local economy is far worse in comparison to other states than we were in 1977.
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p>We cut taxes, and it didn’t work.
Massachusetts ranks 36 out of 50 with respect to the State Business Tax Climate Index, with 50 being the most unfavorable to business. We need to improve the climate for business in our state.
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p>This is a very comprehensive study;
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p>http://www.taxfoundation.org/p…
No note of the fact that the Tax Foundation is a conservative think tank?
Conservative with respect to taxes yes, but the study is very complete, not some dopey USA today thing or a political Heritage or Brooking think tank. Basically it reinforces my feelings about our state. We are a high tax state but not New Jersey or California. They rate states on a variety of bench marks, Massachusetts does well on some and poorly on others. Massachusetts has the highest unemployment compensation rates in the country, great if you are an employee, but bad if you are an employer or an employee looking for job. Employers pay into the fund to support it, if you make it too expensive employers will not hire. Massachusetts needs to keep its taxes under control if we want businesses to expand here or locate here. It is very easy to move across the border to New Hampshire.
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p>The study is well written and reads quickly.
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The approach to the tax problem reflected by these studies shows the problem of states competing with each other to see who can tax the least. This is a collective version of the “race to the bottom”. The same one that wage earners (eg the former Hyatt housekeepers) are experiencing individually.
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p>There should be some national limits on how far states can go in starving their collective interests in order to persuade people with money to locate their businesses there.
A few years back there was study of an average sized manufacturing business, I think it had like 30 employees, the business would lose money in New York state, break even in Massachusetts and make money in New Hampshire. If you were starting a business what state would you start in ? If all taxes were the same, no jobs 🙁
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p>Massachusetts is giving money away to film makers. They get a 40 cents of every dollar they spend in Massachusetts in a tax credit. So Tom Cruise makes 10M on a movie, the state pays for 40% of his salary.
Do you see any significant number of businesses doing that?
Take the worst case, liquor stores who had a 6.25% tax increase, do you think any liquor store will survive in Massachusetts near the New Hampshire border.
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p>Other recent state actions make any business person question operating in Massachusetts.
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p>a.) They have hired a herd of auditors to go after small business in the 10 to 100 employee range, this requires you to hire accounting and legal help, just what a small business needs in the middle of a recession.
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p>b.) They questioned a start up company sales tax exemption, taking it to court. The argument was they hadn’t made a product yet. But they were a startup company.
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p>What business would want to start in a state that treats you like thia ?
you don’t answer the question. What businesses have moved to NH?
Here is a recent one for you (Skelley Medical)
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p>http://www.nheconomy.com/pride…
and another
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p>http://www.gcairnsinc.com/My_H…
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p>Fabrication firm we dealt with for years, moved across the border. Anyone who owns a business thinking of expanding within 20 miles of the NH border would move. Why would you stay ?
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p>I was talking with a manufacturers representative, all of his competitors have moved to New Hampshire, they wonder why he is here.
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