| The Governor recently announced the need to cut funding for school transportation, job training, health care, and other investments that support and strengthen our people and our economy. One of the reasons for these cuts was the anticipated triggering (which became official on Wednesday) of an automatic tax cut caused by a twelve year old law.This tax cut, which primarily benefits the highest income taxpayers, will cost the Commonwealth $145 million a year. It is part of a series of automatic income tax rate cuts that together will cost the Commonwealth $325 million this fiscal year. The annual cost could grow to over $800 million over the next five years. This could significantly weaken the Commonwealth’s ability to rebuild our crumbling infrastructure, invest in expanding access to high quality education, and protect access to affordable health care.MassBudget’s new fact sheet Automatic Income Tax Rate Cuts: FAQ describes how this automatic tax cut works and examines its likely consequences. This tax cuts has its origins in a series of income tax cuts that began in 1998. Those tax cuts cost the Commonwealth over $3 billion a year and, in the years since, we have seen deep cuts in education, local aid, and other important public services (see chart to right).
The primary beneficiaries of the automatic tax cut will be the very highest income households (see chart below), who already pay a smaller share of their income toward state and local taxes than do other households.
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The automatic tax cut was a nutty Tom Finneran proposal when the legislature first adopted it but the stupidity is now mightily apparent. We are cutting taxes at the same time the Commonwealth is deeply in debt to its retirees for pension and health care costs, and our infrastructure is a mess. MassBudget ought to be pushing for so-called “excess revenue” be used to pay off state debts and future obligations, not tax cuts. It won’t help with the current budget problems, but we should be retiring obligations instead of cutting taxes. The infrastructure, pension and health finance problems were built over decades and can only be solved over a long period. Let’s star here.
Mass Budget isn’t “pushing” for tax cuts. They’re just reporting the negative consequences of the ill-advised tax cuts passed 15 years ago. Mass Budget’s been pretty clear that they favor changes to the state tax code to make it less regressive and to raise more revenue overall because these cuts have hurt.
and understood, especially since their fed tax status does not allow for any advocacy. My language was less than perfect.
A ballot question, not legislative initiative, was what caused the cut. And part of it was Dukakis insisting that the original tax hike was ‘temporary’. I remember the House Taxation chair saying that the temporary wasn’t actually IN the law, therefore it was permanent, until one of the other members reminded him that they had been there when Duke testified and that it WAS represented as temporary and emergency.
All tax cuts benefit more the people that pay more taxes. It’s just math. Even when we had the recent temporary cut in the FICA rate, which is income capped, and doesn’t apply to non-wage earners, a case could be made that the $100K person got $2,000 and the $20K person $400.
Just on the optics of this particular issues (the MA automatic decrease), I think the chances of getting this changed are slim. Also note that outrage over a .05% reduction will be hard to muster.
The issue here, to me, is that the overall state taxation scheme is regressive. The income tax, due to the exemption on the first X thousand, introduces some progressivity into the overall picture, but not enough to offset the regressivity of the other taxes. A big problem is that the sales tax rate now is higher than the income tax rate. That is completely backward, and even a small cut in the income tax rate, while leaving the sales tax above 6, exacerbates that situation.
I don’t get the sense they expect it to change any time soon, but they are trying educate on what the consequences are.
I agree on the regressive nature of the income tax, though the exclusions (food, clothing) help somewhat. If you cut the sales tax 1%, you lose $500 in revenue on a $50,000 car, so in theory that tax cut would benefit the upper brackets as well, and you wouldn’t make it up if the person was living off investment income, unless of course you adjusted that (and that’s trickier than just taxing wages.
http://theconservativeincomeinvestor.com/2014/04/13/wealthy-families-move-their-trusts-to-new-hampshire/
You have to go at it from a comprehensive (“we’re fixing everything”) perspective, but you have to have credibility and not end up like Illinois. Where a big tax increase apparently didn’t fix much. If things go well for the next year, maybe MA might be able to do something.
http://www.chicagobusiness.com/article/20141202/NEWS02/141209936/rauner-on-illinois-budget-its-worse-than-you-thought
I am feeling agreeable today.
You are correct about the “primarily benefit” line. This stuff is subject to massive gaming by fiddling with the way stats are presented or graphed. I was profoundly annoyed when the national issue was the expiration of the Bush tax cuts, for similar reasons. We had to let the tax cuts on the wealthy expire in order to maintain “fiscal responsibility” but kept the other tax cuts in place, responsibility notwithstanding. Every tax cut saves a wealthy person a dollar, and a non-wealthy person a dime. But there are so many more non-wealthy people that the dimes add up to far more than the dollars. Pretending that the tax hike on the wealthy was for “fiscal responsibility” was a little like chiding your spouse for busting the grocery budget by buying those ribeye steaks, and then turning around and buying a few dozen new Ferraris on the credit card.
At the same time, fenway is right that this is a tool to illustrate the regressive nature of the tax system in the Commonwealth. And effective it is.
Just remember that the progressive tax advocates will always show you how much one individual taxpayer will benefit compared to another individual taxpayer, and the opponents will always show how much one group benefits compared to another group.
It sounds like you think rich people should get tax cuts because poor people are so irresponsible with their money? You might need a simpler analogy.
only that it’s not fully “fiscally responsible” to maintain the Bush rates for lower earners because that represents a lot of money not going to the Treasury.
Personally I think the rib-eye vs. “a few dozen new Ferraris” overstates the numbers, and that expiration of the Bush tax cuts on income over $250,000 would be far more fiscally responsible than the DC Republican plan of leaving all the Bush rates in place. Given the stagnant wages for much of the population and the soaring incomes at the top, I’d have left the Bush rates for earned income below $250K, or at least $150K. Instead raised rates on dividend income and short-term capital gains, and reinstituted several higher brackets on very high incomes. Bracket at $500K, bracket at $1M, etc. And of course these are marginal brackets on taxable income after all deductions.
The total cost of an extension of all the Bush tax cuts for two years, which was under consideration this time four years ago, was calculated by the Joint Committee on Taxation to be $544 billion. An extension only for families earning under $250,000 (while ending the cut for those families making more) was calculated to cost $463 billion. That’s 85% of the total.
So people were arguing that we MUST have a tax hike on the high tax bracket, because the $81.5 billion so raised was crucial to maintain the fiscal footing of the government. At the same time, they supported the extension of the <$250K cuts, permanently, thus spending $231 billion and change per year, every year, out to the horizon. While dozens of Italian sports cars might be an exaggeration, it wasn't much of one.
So I think it is fair to say that the whole "fiscal responsibility" thing was some hogwash to allow for a purely political wedge issue to throw at Republicans. To the extent that Romney walked up to that bear trap, stuck his face in it, and poked the trip-plate repeatedly until he had his pretty face caught in an ugly bear trap, I guess it was successful. But it sure didn't have anything to do with fiscal responsibility.
The phrase "primarily benefits wealthy taxpayers" does the same thing. I grant you it is the Lakoff-approved "framing" of the issue, but that is just a way of saying it is a sales pitch, using jargon.
The argument I made above– that the taxes on the wealthy don't actually raise that much money relative to taxes on the non-wealthy, is the tax-cutting conservative set. But it isn't wrong. Neither are the counterpoint figures: Warren Buffet gets a tax break that exceeds his secretary's salary, and the secretary gets $1200. Both are true.
Another way of looking at it is that if you are really, actually concerned about the state of the revenue figure in the budget, the "raise taxes on the wealthy" isn't really much of a solution at all.
My point was simply to recommend not falling in love with those charts, because they are always carefully crafted to manipulate you, and should be considered as a sales pitch. The charts don't really add much to an actual policy argument– they just please, or displease, people based on what they already believe.
.. the best sales pitch out there is, in fact, the truth. Works every time.
Works. Every. Time.
…And some people already believe in truth and righteousness and some people… don’t.
The idea that your belief is just as valid as mine… even if your belief is only constructed to repudiate mine… is a notion made only to bolster yours and weaken mine.
You didn’t choose the Bush tax cut thresholds, so I’m not criticizing you when I observe that this idea that the middle class extends to $250,000 is nonsense, and part of the problem.
Preserving the tax cuts for households making $240,000 seems asinine to me. Same for $180,000 and $120,000.
I don’t have a magic number for where “the rich” starts. But, I wonder how much of the tax revenue for the <$250,000 portion is in the $50,000-$250,00. I bet it's a healthy chunk.
Bottom line: your point is much stronger when we define "the rich" at $250,000+ a year than when we define it lower. If instead of trying to "tax the rich" we instead try to "tax cut the poor" we could use a number like $50k instead of $250k, and then we'd be able to help out those with the least without taking a big whack out of the budget. And, don't forget, if the taxes are about income brackets, everybody making more than $50k gets the same financial benefit, which means a hell of a lot more to the fmaily making $75k than the family making $275k.
by the figures (sincere thanks for looking them up). But even 5-to-1 is a far cry from multiple Ferraris vs. rib-eye. Just sayin’.
My proposal would raise marginal rates below 250K down to mid-100s, but not on people who’ve been dealing with stagnant wages. Even though it’s relatively few people, most of the dollars in excess of $250K are “earned” by people making well into the seven figures. The expiration of the Bush tax cuts led to a 4-point increase in the taxes paid on that income. I’d nearly triple that by having higher brackets. Tax dividend income same as earned income. Raise capital gains, particular for short-term investments. Cut the big oil subsidies, etc. I understand has about as much chance of becoming law at the moment as I do of becoming Supreme Leader.
My problem with your complaint or protest about the rhetoric, although I understand it, is that the other party’s idea of “fiscal responsibility” in the past 35 years has been to explode the national debt when holding the White House, then become the severest of fiscal hawks the second a Democrat takes the oath of office.
But unlike Republicans of yesteryear like Hoover and Ford and GHWB, they are unwilling to “reduce the deficit” with ANY increase in revenue. They are merely implementing Phase Two of “Starve the Beast.” So I’m fine with calling them out as heartless and hypocritical, and there’s nothing wrong with pointing out that deficit reduction can be achieved by revenue increases as well as by spending reductions.
Since we’re talking rhetoric about the Bush tax cuts, of course this is all federal budget I’m discussing, not state as was the topic of the post.
does it really make sense, in the midst of the state’s latest budget shortfall, to propose a $42 million budget increase to the state’s human service contractors? As I noted in a recent post, this Italian sports-car give-away is being done in the same bill that is proposing tens millions of dollars in local aid and other cuts.
If the governor were to hold of on proposing this $42 million increase at the present time, there would be no need for the major local aid cut being proposed of $25 million, and no need for close to $20 million in additional cuts.
There’s two ways to look at this.
1. Which group pays less taxes as a result (dollars)
2. Which group pays less taxes as a result (percent of total income)
If we cut the tax rate, then higher income folks certainly win under (1), but for (2) it could end up all over the place, depending on the tax details. If we cut the tax dollars, than it’s a wash under (1) but folks on the lower half of the income scale do better under metric (2).
What kind of tax benefits the low income taxpayers over the high ones? I’ll give it a shot (state taxes):
* increase standard deductions
* increase MBTA deduction (by allowing all MBTA payments for transit, not just weekly or monthly rides)
* increase rent payment deductions
* eliminate sales tax on OTC medicine
I’m sure there are others. No tax policy can be perfect in the sense of helping the poorest “the most”, the richest “the least”, and everyone else in a perfect line. Still, there can be tax cuts targeted at the poor. Unfortunately, we tend not to see those very often.
I’ll save less than $100 in taxes. What a joke.
My town is looking at major cuts now and when the next budget comes out. I’m talking major damage to services, including education.
The core issue that we don’t even articulate in this country is, every fiscal and taxation decision affects the balance between the individual and community. I don’t care so much where people set that balance for themselves, but for the last 30 years, the polity has forgotten that there is a community variable.
…was that with the economy growing we could afford to lower the rate without sacrificing revenue in real dollars, leaving aside of course the argument that what we really need is more revenue anyway.
Looks like this income tax trigger is going to work in incrementally deadly fashion — akin to slowly raising the temperature of a kettle’s water so that the frog inside doesn’t notice.
Would the Legislature act to correct this flawed formula? Doubtful. Their view is that any upward change in the tax laws subjects them to public punishment, so why endure retribution for the sake of negating a very tiny tax cut? To vary the zoological metaphor, in the words of one former legislator, “if they’re going to call you a horse thief, you might as well steal some horses.”
This discussion on the consequences of automatically triggering an income tax decrease is so sad because there is really nothing we can do about it as long as Baker is our governor. If you recall, this is the guy that pandered to the uneducated voter by pledging during a debate with Martha Coakley that he would not raise taxes or fees. Martha Coakley tried to question the veracity and soundness of the pledge, but when Baker repeated it, Coakley, in obvious disgust, through in the towel and joined him.
As has been observed upthread, this tax cut has been on the book for a long time. Both campaigns knew about it. Neither campaign had the courage to talk about it.
The focus now should be Bob DeLeo and the House to put a stop to this madness. We need to be RAISING the personal income tax rate (along with the exemptions), not lowering it.
Democrats have an overwhelming and totally veto-proof majority in the Legislature. We Democrats should do the right thing NOW.
Barbers, accountants and everyone else. Baker is right to oppose increasing those. These should exist to facilitate these professions but shouldn’t be considered a another revenue “well”
Sorry about that.