[UPDATE: The Gov’s weekly podcast is about this topic]
The basic plan:
Governor Patrick announced today that he will create a Homeowner Circuit Breaker that will apply to homeowners of all ages. Under the plan, which would take effect January 1, 2008, an estimated 100,000 families and individuals across the Commonwealth would qualify for a state tax credit of up to $870 per year. This credit represents a nearly 25 percent offset to the average state-wide property tax bill of $3,800.
Individuals earning up to $46,000 who are not head of household, heads of household earning up to $58,000 and married couples filing jointly earning up to $70,000 would qualify. The assessed value of a homeowner’s principal residence could not exceed $684,000. The credit will cover the amount by which a household’s property tax payment, including water and sewer charges, exceeds 10 percent of their income.
In other words, the Governor has found a way for the state to provide property tax relief — and pretty significant property tax relief, at that. So those of you who, seven weeks in, were all set to decide that Deval Patrick made a whole slew of promises that he knew he couldn’t keep: we’re waiting for your apology.
Oh, and how will he pay for this? Read on:
To fund the Homeowner Circuit Breaker, Governor Patrick will file legislation next week to close a number of corporate tax loopholes that allow some companies to exploit the tax code and receive unintentional and unfair benefits.
“There are cracks in the system which allow companies to avoid paying their fair share,” Governor Patrick said. “By closing these unintended loopholes, we can help relieve the burden on homeowners and small businesses and assure that all Massachusetts businesses are treated fairly and equitably.”
You can read up on the details here.
And it doesn’t stop there.
The Governor also announced that next week he will call for an examination of the Commonwealth’s antiquated tax structure. Included in the study group will be members of the business community together with leaders in labor, government and other community stakeholders in order to create a business climate that strengthens our global competitiveness.
Now that could be interesting.
We await tomorrow’s front-page, above-the-fold headline in the Globe describing Patrick’s property tax relief/corporate loophole closing plan. — UPDATE (2/23): and there it is, written by our good friend Lisa Wangsness, no less. Thank goodness the Globe can still take a break from drapes, Cadillacs, and Tom Brady’s unborn child to cover something that could actually affect the people of Massachusetts!
BOSTON – The issues of tax fairness and corporate tax avoidance have received increased attention in recent days. To help inform this policy debate, the nonpartisan Massachusetts Budget and Policy Center (MBPC) today released two Facts at a Glance fact sheets: Business Taxes in Massachusetts: How Our State Compares to the Nation and Combined Reporting: What It Is and How It Works.
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The first examines recent studies on corporate taxes, the findings of which indicate that the overall level of business taxation is significantly lower in Massachusetts than in most states; in fact, these studies indicate that by four different measures, Massachusetts ranked among the eight states with the lowest business taxes.
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The second looks at Combined Reporting, a method of corporate taxation that is currently used in seventeen states to reduce corporate tax avoidance.
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The Facts at a Glance fact sheets are available on MBPC’s website, http://www.massbudget.org, or you can view them (in PDF format) by clicking here for Business Taxes in Massachusetts: How Our State Compares to the Nation and here for Combined Reporting: What It Is and How It Works.
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The Massachusetts Budget and Policy Center (MBPC) provides independent research and analysis of state budget and tax policies, as well as economic issues, that affect low- and moderate-income people in Massachusetts.
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Noah Berger
Executive Director
E-Mail: nberger@massbudget.org
Phone: (617) 426-1228 x102
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Mathew Helman
Communications Director
E-Mail: mhelman@massbudget.org
Phone: (617) 426-1228 x109
David —
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Why would you think the Globe wouldn’t play this on page one above the fold tomorrow? This is the paper’s bread and butter.
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That said, Patrick’s plan may very well violate the state constitution, as it amounts to a graduated tax. I know that a graduated income tax is unconstitutional; I’m not sure why a graduated property tax would be any different.
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Sorry, David. Under Tom Birmingham’s leadership, the Legislature was also able to introduce some progressivity into the state income tax by the creative use of exemptions, even though a grad tax is unconstitutional. The question is, how far can you go? What is reasonable? Are property-tax exemptions for low- and moderate-income people being used as a backdoor way to create an unconstitutional graduated income tax? All those questions will have to be addressed.
from saying, as you did upthread, that the plan “may very well violate the state constitution,” that it “amounts to a graduated tax,” and that you’re not sure why a “graduated property tax” wouldn’t be unconstitutional.
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To answer the rather different question you’ve now posed: given the widespread existence of exemptions and credits against the income tax, the constitutionality of which doesn’t seem to be in doubt, it strikes me as highly unlikely that this new credit would be so far beyond what already exists that it would violate Art. 44. It doesn’t strike me as coming anywhere near the elaborate plan of scaled exemptions that TEAM (I think) tried to put in place and that the SJC struck down. But the SJC has surprised me before, and it no doubt will do so again.
That’s interesting. We can have progressive tax rates according to that, just not on income derived from property.
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So taxes on non-property derived income (earned income) can be taxed at non-uniform rates, as long as all the rates are lower than the tax rates on income derived from property. Has this actually been tried in court?
And since we can’t have a graduated income tax, that’s why it’s dangerous to try to interpret the state constitution on your own. Let’s not forget that the voters have rejected a constitutional amendment that would create a grad tax on several occasions, most recently in (I think) 1994.
Where does it say we can’t? The constitutional amendment that granted the government the power to tax income clearly treats taxes not derived from property differently from taxes derived from property. It says that tax rates must be uniform on income from the same class of property, then it says income not derived from property may also be taxed at a lower rate. It never says anything about whether income not derived from property has to be taxed at a uniform rate. So where does that idea come from?
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Has the general court ever tried to create a graduated income tax and been told by the courts that they can’t? Or are people just passing the restriction of uniformity of tax rates for each class of property onto tax rates on income not derived from property? The article clearly mentions taxing income not derived from property, and the only restriction it places on such taxes is that they must be at a lower rate than taxes on income derived from property. So where is there a restriction that restricts graduated tax rates on income not derived from property?
Peterson v. Comm’r of Revenue, 441 Mass. 420
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Next, and this is important:
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The existing Circuit Breaker, as best I can tell, hasn’t been tested in court to see if its violative of Article 44.
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Odd that it wasn’t tested by some tax group. They just don’t make tax guys like they used to.
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But, the existing Circuit Breaker constitutionality probably rests on a 1930 opinion where, the Justices found that a small, fixed income tax exemption to individuals whose net annual income did not exceed $10K didn’t violate art. 44: the fixed exemption was “not so large as to bear on their face indications of want of equality between the inhabitants.” 270 Mass 593 at 601.
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The existing Circuit Breaker is only eligible to folks over 65, with a high value home and a relatively low income.
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Reasonably, I can see how the current statute doesn’t violate article 44, particularly in light of 270 Mass 593 which went on to say: The purpose of the exemption was “to relieve from taxation those whose income is no more than sufficient to support the recipient and his immediate family, and keep within fair bounds the burden upon those whose ability to pay because of inadequate income is low.”
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So it looks like the Governor tweaked the existing statutes at the edges to raise the qualifying income levels a bit and eliminate the age requirement.
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I would have believed that with 270 Mass 593 as precedence the proposal would pass constitutional muster, BUT,
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In 1986 the Legislature tried to pass a fading exemption Bill — i.e. low income taxpayers get a personal exemption and some other stuff but don’t get a personal exemption if you’re a high income guy.
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The Massachusetts Taxpayers Foundation, Inc. v. Secretary of Admin., 398 Mass. 40 (that was when the MTF actually wanted to lower, not raise taxes), with the tireless efforts of a young up and coming conservative lawyer, brought a complaint for declaratory judgment, seeking that the graduated system of personal exemptions that were designed to fade as income rose was in fact unconstitutional.
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The defense argued mightily that 270 Mass 593 and its reasoning should prevail.
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The answer from SJC:
suck it libsnope, the statute was unconstitutional.<
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So, now to the instant proposal. Freak yes it’s unconstitutional! Come on. A guy who earns $46,000 with a $500,000 house gets a credit and a guy who earns $60,000 with a $500,000 doesn’t?! That’s porportional?
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If the SJC was able to ignore the reasoning of 270 Mass 593 in the 1986 case, which involved the loss of minor deductions as one’s income increase, it should, with a cogent argument or two reach the same conclusion with respect to this new Circuit Breaker plan.
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IMHO
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more complicated and more extensive than just “minor deductions”? As I recall the case (if it’s the same one I’m thinking of), the scheme enacted by the lege was the real equivalent of different tax rates for different incomes, so the SJC saw it as an attempted end-run around Art 44. If you have the case handy and would be up for posting some further details, it’d be much appreciated!
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You spin it your way; I’ll spin it mine.
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The Mass law was a copy of the Federal, or at least the Legislators were thinking similarly to Congress: faze out the exemptions so that only the wealtier paid a truly flat tax. Caution, spin free quote follows:
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There were similar sections 6(3) that had similar language to deal with single and married filing separate, but these statute were the basis for the Opinion.
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To me then, it was minor (i.e. it wasn’t the money it was the principal of the thing). You be the judge.
I’m trying to figure out the profile of someone who would qualify for this benefit.
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You are within income limits but your tax bill needs to exceed 10% of your income. So, let’s say you make $30,000. Except for communities in the western part of the state, I don’t know what kind of a home you could own on that salary. But, let’s say that you do own a home. Chances are your tax bill will not exceed 10% of your income (from Boston.com, less than half the communities in MA have an average tax bill over $3,000).
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I don’t think it would benefit many recent home buyers. It might help those who “upsized”, using the profits of a sale of a smaller home to purchase a home that otherwise they couldn’t afford.
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I question whether anyone who owns a home worth $400K (let alone $684) needs a tax break. If they live in a home that is valued so much, but still qualify under the income restrictions, it seems they would have a good deal of equity in the house. So, the proposal is saying that we should provide a tax break to people who will someday realize a big profit from the sale of their home?
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Are there other examples of tax incentives for investments? I understand that a home is more than an investment, but is it good policy to reward people for emotional decisions that leave them cash poor/house rich?
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Anyway, 100K estimated recipients — if it’s anything like the participation in our town, only a very small percentage of eligible persons will apply. I say back to the drawing board, Governor.
That’s who benefits. Seniors on a fixed or reduced income who still live in the house they raised their family in — and live in the eastern half of the state where home prices are high enough to trigger the circuit breaker.
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So, who wins? Their kids. They end up with a bigger inheritance. Who loses? Growing families who would normally find more larger homes on the market, and hence lower prices. What’s better for the towns? Probably the seniors, since they don’t strain the schools. What’s better for the state? Probably the growing families, since they are paying more in income taxes.
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What’s the right thing to do? With taxes, who the heck knows.
They’ve already got the credit, and have had it for years.
For two reasons:
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1. For pointing out that I was clearly wrong. Good call.
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2. For pointing out where the dollar values and requirements came from. The proposal appears to essentially removes the age requirement from the senior circuit breaker tax credit. Now, you don’t have to be 65, but the other requirements ($684,000 home, $46k/$58k/$70k income restriction) do apply.
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Can anyone tell if this is true — that is, the entirety of the DP proposal is to remove the age 65 requirement from the current legislation?
…you do not need a 684,000.00 home. You need to have a house of any value that is not greater than 684,000.00. Very different effect.
Seniors who rent can treat 25% of their rent as “property taxes”. That does not seem to be the case here.
Tax guys.
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“Said proposal sounds very complicated. Let me ruminate on the statute change for several billable hours….”
…but that is ridiculous. Any tax guy who charges a one time 75.00 fee can do this. I would be surprised as well if it wasn’t included in all the standard software packages that people use to do their own taxes. Moreover, I used to volunteer to assist lower income people with their taxes. Anyone who would likely qualify for this credit could likely also get free help to do their taxes.
..i.e., residential, light industry, commercial, heavy industry, etc.
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We have a flat income tax for earned income (wages) in the cosntitution. I’m not sure rental and leasing income are earned income in that sense.
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David?
State law permits communities to have their own “circuit-breaker” exemptions, and many do. The first, what is it, 4k of income is exempt on the state income tax, constitutional restriction notwithstanding. All of which introduces some elements of progressivity into our tax system.
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I’m not saying that your observation is necessarily wrong, but if it is right, then the existing circuit=-breaker programs and personal exemptions are wrong too.
Housing prices and salaries are a good deal lower in Western Mass than in Boston. The ratio is what matters.
he’s not coming up with some bold, new ideas.
Tax cuts for a family making $70K and owning a $684,000 home.
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Tax cuts for the rich? What’s bold about the plan is its ‘supply side’ initiative.
A family of 4 earning 70k is rich. A family of 4 earning about $65k in Massachusetts is equivilent to one making about 45k in North Carolina. Prices are out of whack and property taxes are cutting very, very deep.
Sorry, I don’t think this is all that impressive. This plan helps 100,000 people? Big deal; everyone needs property tax relief. Despite the slight tumble in the housing market, we still have some of the most cost prohibitive housing in the country. Home value doesn’t translate into cash in the checking account, and to be fair – a family making only 70K a year can’t buy a decent house around here.
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Rather than this shopworn “progresive” model…why not allow the municipal governments to save on health insurance costs by entering the state program? How about reforming the exise tax? How about some “outside the box” thinking of tax options at the local level?
The people at this level usually just use the simple tax form (or the telefile system).
They don’t usually use long form.. which usually requires hiring some tax preparer who takes a good chunk of what they would save.
1) This plan will help people: some friends of mine were almost bought a house a couple weeks ago. They make more than my wife and I, but probably not that much more (as in both cases the public school teacher is the primary earner), so less than $70k a year, and have less loan and credit card debt, so they could just about afford the offer they made, but they weren’t able to raise much more after they discovered how how the property taxes were. For low income starting off families, the extra burden of property tax on top of figuring out how to get a mortgage and pay of that is just another barrier to getting into home ownership. This part of the plan will help those starting out.
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2) Allowing municipal governments to enter into state is part of the overall plan, and a great move.
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3) local tax options instead of sole reliance on the property tax is part of it too, and excellent move IMO
All public school teacher salaries are not created equal. The average salary in my town is not $35K a year – it’s $42K…so a couple of public school teachers will be making $84K, and will not b allowed to take part in the bounty that is Mr. Patrick’s proposal. This goes for other public servants as well….I am married to one of those as well. We’re “too rich” for a tax break, but too poor to do more than take yet another loan to pay for my daughter’s college education.
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I think this is just bandaid policy; it doesn’t do a thing to get at the roots of rising property tax. This is a quick, feel good policy so he can check it off his list of campaign promises. What I would like to see is a comprehensive policy that addresses not only the triggers to increased property tax, but also the byzantine method of distributing local aid.
Along with closing tax loopholes, allowing towns to have a small meals tax and adding some property tax relief for families who need it most – Deval Patrick is planning some important hearings to tackle the systemic problems that exist. It seems like his philosophy is to add some bandaids now, while he moves toward bolder strategies to change how our state tax system works.
….not everyone needs property tax relief. I am quite comfortable with what I pay and what I get in return for having paid it. I fully support a state govt. that provides affordability to the most people possible, but I think people go a bit overboard overstating how bad it is for everyone. Not everyone is struggling so every initiative does not need to be a panacea for every person.
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Secondly, it seems pretty clear that this initiative is aimed at giving property tax relief to the elderly, living on a fixed income. They are the ones making 70,000.00 and living in 600,000.00 homes. They deserve relief, and nothing about this initiative forecloses on helping others in need with the next initiative.
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Lastly, Patrick rolled out a tax proposal for local municipalities last week. As far as your other proposals go, they are still possible but Patrick seems to be taking a one off approach on tax reform which I think is the best approach. No one is going to get behind a one time seismic shift in taxation; it would be too frightening for almost everyone.
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This isn’t relief for the elderly and I’ve been scratching my head to figure out who it affects.
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It’s not for the elderly. They’ve already got the relief.
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So, if not them, then who? Not the young folks, because which young folks starting out, would buy a $684K home, or would be able to buy a $684K home on $70K per year?
Well, for one, it’s for people whose property values have skyrocketed after they bought their house. Let’s say you paid $200k for your house ten years ago, but values in your neighborhood have gone through the roof, maybe your house is now worth $650k, resulting in both a shift in taxes from other neighborhoods and a shift from other classes.
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It also helps people who have had their incomes reduced, perhaps because their job was sent overseas.
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It helps people who choose to have a spouse stay home with the kids, thereby reducing their income.
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It helps people who inherit houses that are more than they could normally afford.
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It certainly doesn’t help everyone, and it also probably helps people who shouldn’t get help, but no plan can do everything perfectly.
…I must confess I misread the proposal. It is not for people who own 684,000.00 homes, it is for anyone who owns a home worth less than that amount, so there are in fact a lot of people it could help. A lower income family where one spouse has been unemployed or unable to work for a significant portion of the year springs to mind as a good example. There are also I am sure a lot of low to moderate income people out there who have owned their homes for quite some time whose incomes have not risen in line with their tax burden. It won’t help me, and perhaps not you, but it will help some.
(RKO) explaining that Deville’s tax plan was actually “authored” by Romney and Deville is merely “using it”. This is hilarious!!!
…hillarious? It is a good idea no matter who authored it.
are the “Deville fans” cheering wildly about their “hero’s” new plan and it isn’t even his. ILMAO!
…about HIS new plan. I wasn’t aware of this fact until today, but this plan is clearly modeled off of the already existing circuit breaker for the elderly. If Romney came up with that, good for him. If he was the first one to think “Maybe this can help more people” also good for him. Patrick is the first one to propose its actual use, so good for him. No one is giving Patrick credit for re-inventing the wheel. This plan is not that novel.
Anthony, just because you’re not hungry doesn’t mean that no one else is. I am have to disagree with you; the exhorbitant cost of housing is hurting us on two levels. It’s a barrier to new homeowners and it’s a burden on middle class – you know, the ones that are too wealthy for a tax break but can’t afford private school and can barely scrape it together to send their kids to college . The pace of municipal residential tax is nearly unparalleled. A report by the MMA made that very clear; we are nearly at the level of municipal tax when the voters enacted Prop 2 1/2. I believe another tax revolt will be imminent if something isn’t done soon.
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Another fact is, Anthony, that the 100,000 that this policy will help represents maybe 5% of residential homeowners. When Mr. Patrick was running – he promised property tax relief to everyone – not just 5%. Do you HONESTLY think that Massachusetts taxpayers would have voted for Mr. Patrick if he issued his caveat – property tax relief for 5%?
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This is the canyon that we Democrats tend to fall in. We get so high minded that we forget our promises, our connections to our communities and where we came from.
….that no one else was hungry! I said that not everyone was over burdened. It’s true. There are actually some people who can afford to live in Massachusetts. That is a good thing. Despite popular contention you don’t have to be wealthy to live here. Sometimes people go a bit overboad in casting MA as a welfare state and that is no better that pretending like the free market will fix everything. The answer is somewhere in the middle, not at the extemes!
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Also, not every proposal needs to help every person. Mr. Patrick can only do so much at one time. It takes time to revamp a state’s tax structure. One step at a time. He’s been in office for six weeks. Did you actually expect that the Commonwealth’s problems would be solved in less time than it takes to grow a Chia herb garden? Nothing has been forgotten. In fact, I think it is a good sign that one of the first proposal’s out of the gate benefits the hardest hit.
from the campaign promise. I think this proposal as part of a comprehensive package that would have addressed the macro view of property tax policy instead of this bandaid would have been well received. If it takes more than six weeks – then he should have taken the time that he needed. As a middle-aged, life long Democrat who has studied policy – this doesn’t bode well for real relief. I am old enough to remember the Massachusetts Miracle that wasn’t.
at all and I seriously question the expectation of immediacy that people in our culture have developed. Patrick hasn’t solved all the state’s problems in six weeks so lets all talk about the sky falling and make Dukakis comparisons. Fickle is a fickle does I suppose.
With all due respect, Anthony – a thoughtful and reasoned response via a comprehensive package on municipal tax reform and policy, whether it takes six weeks or six months is infinitely preferable to waiving a bandaid, which is the point that I am trying to make.
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Mr. Patrick issued no caveats during the campaign (tax relief for only the most needy) and therefore, you have to expect people to ask, “what about the rest of us.” And before I get accused again of expecting instant gratification, I would have thought that given the two years spent on the campaign trail…that someone would have collected and digested the data on what campaign promises were truly fiscally actionable before they were issued. There should have been no surprises after the inauguration, Anthony. That’s what responsible and transparent executives do, and that’s what voters expect from the CEO of the Commonwealth of Massachusetts.
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I’m not alone thinking that the “circuit breaker” wasn’t very impressive. In terms of the history of the Commonwealth – we’ve seen circuit breakers before and they do not usually live up to the hype. To wit: special education circuit breakers. Circuit breakers usually stay on the books, stagnating while real reform goes on the sidelines, allowing the legislature the luxury of thinking “well, at least we’re doing something,” instead of tackling a very thorny problem. And getting state government to get its collective head around transforming its patchwork quilt of bandaid policies (which are usually reengineered or retranslated to suit the agenda of those in the conference committee)* into something resembling solid, data-driven and equitable reform is akin to turning the QEII.
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It is….what it is.
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*school building program, 1948 – 2000, and lottery distribution policy, 1972 – present.
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…I repeat, six weeks. If Patrick’s supporters are not willing to give him at least six months to try and get some substantive things accomplished we are in serious trouble. If I am defensive, it is for the governor’s benefit. If I am defending him to his supporters (i.e. you) in such short order, well…..
100,000 families is probably more on the lines of 300,000 people… which is a hefty chunk of Massachusetts.
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Furthermore, it’s only ONE of his solutions. He’s also proposing to allow cities and towns the option of having a meals tax, which will help a lot of other cities and towns avoid future hikes. For every Westwood or Swampscott that may only have a few restaurants, there are Peabodies and Sauguses with a bunch.
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When you add up multiple proposals, suddenly one that’s ‘only’ helping 100,000 families isn’t so bad.
The Globe was pretty clear; it’s 100,000 homeowners which translates to roughly 5% of homeowners. Funny, I don’t recall Mr. Patrick saying that he would provide tax relief to only 5% of the voters.
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Additionally – if you’re going to argue, you really should be more data driven. A quick trot out to the DOR website reveals that 85% of the states taxable property is residential or open space. Of the remaining 15%- how much do you really think are restaurants?
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Now….let’s look at Peabody and Saugus. The percentage of Peabody’s residential taxable property is 79.5% and Saugus has 82%. How much of that paucity is actually restaurants and how tax relief do you really think is going to come from that?
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Take a memo Ryan; just because a community has a few restaurants along Route 1 doesn’t translate into big tax dollars. The only community that may reap some tangible benefit from the meal tax proposal is Boston.
Let’s assume the closure of tax loopholes generates the $300 million that’s been cited.
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Let’s assume that the estimate of 300K citizens (~5% of the state’s population) benefitting from this proposal is accurate.
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Is this the best use of the money?
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I don’t think so.
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It’s going to directly benefit only a small percentage of the people, and of that small percentage at least some (those over 65) are already eligible for an existing benefit.
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Aren’t there other proposals that would:
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1) benefit more people
2) provide some benefit to business
3) lead to increased growth rather than be a simple entitlement
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Just some off the top of my head:
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– Increase incentives for communities to implement smart growth initiatives
– Invest in public transportation
– Increase capacity at public universities (preferably expanding online degree programs)
– Improve telecommunications infrastructure to make Western MA more viable for business
– Fully fund all out-of-district special education students
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I’m sure there are others.
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Closing that nasty little “Combined reporting” loophole is supposed to add $136 million.
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16 states have combined reporting. I just don’t see how combined reporting is legitimately classed as a “loophole”. Seems to me to be a policy choice worth not rushing into. Combined reporting is a real 2 way street.
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Since the early 1980s at least a couple of the states have abandoned the method: Florida and Oregon.
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Consider this example: XYZ Corp is going great guns in Massachusetts and is paying state income tax on its Mass profits. Consider that XYZ Corp. has a subsidiary located in another state. Under the current system, if the fortunes of the subsidiary turn down, the profitable Massachusetts XYZ Corp still pays tax on its profits turned in Massachusetts.
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However, with combined reporting XYZ Corp. might owe no tax, adding XYZ Corp’s profits to its subsidiary losses en route to calculating taxable income.
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NY and MD and WV and probably more states presently looking into combined reporting. Now, also Mass. The same thing happened back in 1983. (The “unitary wars”) I think maybe even Massachusetts was unitary in 1983, no?
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Back in the 80s, a batch of states adopted combined reporting. Then, some state economies boomed.
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Tax collectors in the hot economies suddenly realized that they were no better off, because even though the local multi-state companies were locally booming, because of the offsetting losses in other states, combined profits were flat or even down.
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States like Oregon and Florida quickly bailed and the experiment really hasn’t been tried since–only one state has adopted combined reporting in the past 20 years.