(Disclaimer–this what I have in my notes, and I’m sure I’ve left some things out, but I think a voter should at least consider the following.)
Economic Outlook: Basically, it’ll be growth but not great growth. The professor expects the economy to grow at around 3% and employment to grow around 1% for the next two years–this is less than in the booms of the 90’s and 80’s. However, there will be economic pressures driving those people who need jobs to seek them in states with better employment growth, and that can take away future revenues. He expects the costs of services our state provides to grow at 6%. This is gist of what causes a $3 Billion structural deficit in our budget.
Noah Berger illuminated some of the loopholes that Gov. Patrick wants to close, and he offered information that helped clarify the debate about business taxes. Loophole-closers have been arguing that business tax burdens are low in our state, and conservatives have been arguing that the business climate isn’t good so we should preserve loopholes. Here’s the clarification, from a national study (pdf),
“The State Business Tax Climate Index does not measure business tax burdens. While it is unquestionably important how much revenue states collect in business taxes, the manner in which they extract tax revenue is also important…. Good state tax systems levy low, flat rates on the broadest bases possible, and they treat all taxpayers the same. Variation in the tax treatment of different industries favors one economic activity or decision over another. The more riddled a tax system is with politically motivated preferences the less likely it is that business decisions will be made in response to market forces.”
Berger’s offering of these facts about Mass. business taxes (pdf) helped me to see that keeping loopholes keeps the business climate down. Entrepreneurs in Massachusetts don’t want to be surprised by a loophole that they may not get but other businesses might.
Berger provided some good graphics and explanations of how the tax loopholes worked. Two that I recall offhand are as follows: Insurance companies are taxed on premiums, not their profits as other companies are taxed. So if an insurance company buys a brokerage, the brokerage’s profits won’t be taxed. There’s a real estate excise that can be avoided by putting the real estate in a partnership, selling the partnership, and then dissolving the partnership.
(My notes for the last two speakers are scarce because the night was getting on, and I’d been awake since 5:30 am.)
David Sullivan explained that the Governor’s budget pays for the $1 Billion deficit using spending controls and reductions for the biggest chunk (for example, departments won’t be adding new employees without getting approval from people high up the chain of the executive) and then steps like not depositing as much money to the rainy day fund. The goal behind this was getting maximum efficiency from the government. He emphasized that the Governor solved 78% of the deficit before going after the loopholes. He provided a handout with examples of unintended corporate tax benefits.
Rep. Wolf spoke about how the state spending and revenue were apportioned. Since most state spending is in areas like education, health, and social services, when cuts happen, cuts happen in those areas because that’s where the money is–even though those areas are some of the most important efforts to fund. She walked us through a rough timeline of how the budget will be negotiated inside the capital. Rep. Wolf also spoke about how the relationship between the current administration and the legislature is more cooperative than between the lege and previous administrations. Both she and Mr. Sullivan expressed that the executive and legislative branches had common goals and were going to work together. Also, as much as Rep. Wolf and Mr. Sullivan expressed commonalities, they definitely didn’t contradict what the press has already reported about substantive differences between the two branches’ views on the budget.
As an addendum, you may have noticed a difference between the two deficits mentioned: $1 Billion and $3 billion per year. The first number, I gather, is not really taking into account the Transportation system’s shortfall of $20 billion over 20 years. Even after this budget cycle, more hard decisions will remain.
