The Massachusetts Legislature prepared this week to repeal the new “tech tax” and Gov. Deval L. Patrick has already signaled he’ll go along with the plan mostly pushed by the business community.
The tech tax, a new levy on certain software services, was part of a $500 million revenue package approved by the Legislature to provide new funds for transportation improvements. Also included were increases in gas and cigarette taxes.
The legislative leadership has said that one-time tax revenues and an anticipated budget surplus will cover the $160 million lost with the tech tax repeal and that they will not seek tax increases from other sources to replace those funds. That would cover one year’s worth of those lost taxes, while the new spending on transportation would continue.
The speed by which the state’s political leaders backtracked on this new revenue source was only matched by a similar repeal of a business services tax that was adopted and quickly repealed during former Gov. William Weld’s administration back in the 1990s.
There’s no doubt the Legislature can act quickly when pressured, but the bigger challenge is creating a system of taxation that’s fair and equitable.
To address this the revenue bill also created the Tax Fairness Commission. It’s looking at the state’s tax code, with the aim of finding ways to make it simpler and fairer while also promoting economic growth and staying competitive with other states.
The commission met for the first time last week and its leaders were honest about the difficult task ahead.
The co-chairs, Sen. Michael Rodrigues (D-Westport) and Rep. Jay Kaufman (D-Lexington), expressed the hope that they could advance the public discussion on tax fairness, but admitted that they have little time, since the commission’s report is due next spring.
Rodrigues told the State House News Service, “We’re not going to get done in a couple of months and think that we’re going to propose or create a proposal that’s going to make our tax system more fair and equitable. It’s just not going to happen.”
But it’s a start and the first thing the commission should do, if it hasn’t already, is look at a March report by the Massachusetts Budget and Policy Center, an authority on Bay State budget matters.
Report shows regressive tax system
Authored by Kurt Wise, a senior analyst at the center and also a commission member, the report shows that the Massachusetts tax system is regressive, collecting a larger share of income from lower income households than it does from upper income households.
Wise says this is primarily due to property and sales taxes, which have the effect of taxing lower income people at significantly higher rates than wealthier people.
For instance, the 20 percent of the population with the lowest income, under $21,000 per year, pay 9.5 percent of their income in state and local taxes. The upper one percent of taxpayers, those earning $708,000 or more, pay only 6 percent of their income in those same taxes.
The lower one’s income, the percentage paid in state and local taxes goes up. Unfortunately, cigarette and gas taxes also affect lower income people disproportionately.
The budget center released another report just this week and suggested ways that the income lost from the tech tax repeal can be replaced. It’s noteworthy that the report suggests shifting some of the tax burden from the poor back to wealthier citizens.
These measures include reforming or eliminating special business tax breaks, reducing opportunities for tax avoidance and reexamining other major tax cuts of the past two decades, all used mostly by wealthier residents.
Therefore it seems the question if the state’s tax system is unfair has already been answered and there’s a plan that would begin to address that inequity. Now what’s the Legislature going to do about it?