While many economists will tell you this crisis came out of nowhere, economic theory actually could have pointed the way. A fundamental reality of our economy that economists across the spectrum have repeated in recent months is that normally 66% to 70% of our economy’s engine is consumer spending. And the spending power of 60% of us in the state has been declining since before the last recession and never really recuperated while only the top 1/100th of the top 1% saw any significant percentage gains in income in the last fifteen years and they nearly tripled their income!
At this point the bottom 60% who spend much if not all of what they bring in day-to-day on living expenses are still loosing ground; even if we spend everything we have, we regular people have not enough to spend to fire an economic engine. While we live in the third highest income state in the country, the tax burden has been significantly shifted onto that 60% so our state economy has stalled and the government’s budget is losing ground fast.
State and municipal budget cuts that undermine jobs and the spending ability of the low-income, working class and middle- income amongst us and increase their need to draw on government resources will only deepen and prolong the crisis we face.
Immediate revenue neutral or even slight cost programs that will stop the economic bleed out from the residents and small businesses of our state and/or provide bottom-up stimulus need to be instituted as quickly as possible. Such as revenue neutral proposals that immediate stem foreclosures and evictions in our state; or the “fork-ready” proposal to fund food stamp intake workers who can help the people of our state draw down, conservatively, $340 million in food stamps generating $600 million in economic activity (this alone dwarfs the economic activity that would be associated with casino development for at least the first several years of any such investment and has none of the negative local cost impacts).
More importantly, we must ask our legislators to realistically (not ideologically) assess the serious need for new revenue streams. If new revenue streams aggrevate the shift of the tax burden onto those least able to pay, such revenue streams will both not increase revenues AND continue to undermine the spending power of those segments of our state whose spending will be most critical to reversing the downward spiral in our state economy.
Tax revenue such as regular sales taxes and property taxes where the percentage burden taxes those with the least should if anything be cut not increased. Income taxes which are the major revenue source which taxes all the way up and down the income spectrum should be increased so that those who still have money to contribute to our state economy start helping to turn our economy around. Such an increase would ideally be offset by a property/rent tax circuit-breaker (which presently exists for seniors in our state) since this is a relatively inexpensive protection for those in the bottom half of the income spectrum in our state. Or we could offset income tax increases with a much more expensive personal deduction increase; this can be large enough to protect the bottom half or 60% of us from the impact of an income tax increase as well although it costs more to decrease payments across the income spectrum and such deductions are too small to be a meaningful percentage of the income of the highest quintile in our state.
We need as well to return the dividend tax to previous levels and ending corporate tax incentives passed at the time to save jobs but never did nor therefore keep state revenues actually in our state!
While most people are shocked when they actually see the vast income divides across our society at this point – check out the American Profile or reports at United for A fair Economy – these are miniscule compared to the exponential wealth divide. A tiny, truly small, wealth tax of say one half of 1/100 of a percent would bring in many millions to our state. Which could likewise be offset with a property/rent tax circuit breaker for those whose primary asset is their home and where tax would represent a significant percentage of their limited income.
These ideas may seem bold but timid action in the face of tectonic sized shifts at the base of our economy will simply be too little too late. And the people of Massachusetts who elected the political lead ers of this state cannot afford that…
Instead bold action now, could right this ship we are on and put the Commonwealth of Massachusetts in a position to once again model solutions for our nation and actually be a magnet for growth and small businesses…