Getting it Right
May 15, 2008
By Matt Kinnaman
Governor Deval Patrick said it’s “a dumb idea.” He called it “irresponsible” and “foolish.” Massachusetts Teachers Association President Anne Wass labeled it “wacky” and “wrong-headed.” What is it? It’s a ballot initiative to eliminate the Massachusetts income tax, on track for a statewide up-or-down vote on Election Day, November 4.
In 2002 a similar initiative attracted 45 percent of the vote. This time taxpayers just may be in a mood to go all the way, especially if they remember how the legislature has treated them in the past on taxes.
Background: In 2000, the citizens of the Commonwealth passed a ballot question reducing the income tax rate to 5 percent. After the initiative passed, House Speaker Thomas Finneran said, "The voters have spoken. We'll abide by it. There won't be any attempt to cushion it, modify it, tailor it in any way. I respect their grasp of issues and I respect the position they take on an issue like that. There won't be any problem with us. We'll implement it."
Sounded great. Didn’t happen. The legislature blockaded it, and the best that voters can hope for now is for a 5 percent rate by 2014, if “economic triggers” defined by Beacon Hill kick in. Or, taxpayers can take more immediate and dramatic action, and eliminate the income tax altogether.
Would it be a catastrophe? Or would it be the most powerfully transformative event in Massachusetts politics since tea first went into the harbor? What would it mean to the Massachusetts economy if three million Massachusetts taxpayers received an average annual raise of $3,600 each? (That’s the amount they’d keep via elimination of the income tax). What would it mean if people suddenly found the Bay State a more attractive place to live, work, invest, and raise families? What would happen to the fortunes of Massachusetts if the Commonwealth became a nationwide magnet for opportunity-seekers?
“The most valuable natural resource in the 21st century is brains,” says tech-savvy Rich Karlgaard, publisher of Forbes Magazine. “Smart people tend to be mobile. Watch where they go. Because where they go, robust economic activity will follow.”
They don’t go to Massachusetts very often. From 1991-2007 more than 550,000 people moved out. This is what the US Bureau of Census calls “net domestic migration,” which in plain English means a vast disappearance of jobs, families, companies, inventions, enterprises, schools, teachers, entrepreneurs, doctors, young people…and revenue. In population loss measurements, the Commonwealth is the 49th worst among the 50 states.
The cost of this exodus is incalculable, but when human capital is appreciating faster than any other resource, it’s something no state can afford when 49 competitors are lined up at the door. Especially when most of those states are much friendlier to taxpayers than Massachusetts is.
What about the numbers? Income tax receipts in Massachusetts currently account for 39 percent of overall state revenue, approximately $11 billion a year. Removed from the proposed 2008 state budget of $29 billion, legislators would be left with about $18 billion to spend.
Is it enough? Let’s go to the historical data. In 1986, before the “Massachusetts Miracle” gave way to the Tax-achusetts exodus, "We were on top of the world," said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation. "The economy was booming and spending growth was in double digits." According to a Boston Globe retrospective on those bright economic times, “The Bay State was Silicon Valley before there was a Silicon Valley.”
At that point, the Massachusetts budget was $8.8 billion. Adjusted for inflation and population changes since 1986 (including increases by births and an influx of foreign immigration), Massachusetts’ 2008 budget ought to be $18.7 billion, almost $11 billion less than what the legislature and the governor’s office are asking for, and enough of a cushion to absorb the projected $11 billion dollar revenue reduction from the elimination of the income tax. And that doesn’t count the floods of new revenue that will be created by new economic activity, a phenomenon that occurs most powerfully in states with people-friendly, low-tax, pro-growth policies.
Nine states—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming—have no income tax. As a group they are attracting population, and in multiple surveys of economic climate, performance, and prospects, they leave Massachusetts in the dust. Without an income tax, all nine states have figured out how to run budget surpluses. Are they “dumb.” Are they “foolish.” Are they “irresponsible?” Are they “wacky?”
Or is it just us?
|