By Matt Murphy
STATE HOUSE NEWS SERVICE
STATE HOUSE, BOSTON -- After Speaker Robert DeLeo's speech last week outlining the House's agenda for the coming year, the idea of tax increases appears verboten once again on Beacon Hill.
But what about a tax cut?
DeLeo last week ruled out any new taxes or fees in the budget his deputies will produce this spring.
But as Democrats rally around the idea of a minimum wage increase to restore the purchasing power of a wage last raised in 2008, the idea of reducing the income tax - often pushed by Republicans during annual budget debates - has been less discussed as another way to put money in consumers' pockets without hurting business.
"Right now, I think that budgetary matters being what they are, I think although we are working our way out of our economic problems I don't think that we're quite there yet, so right now I'm not sure if we're in a position that we could forgo the income that we presently have," DeLeo said Monday, when asked about an income tax rollback.
Cutting the income tax to 5 percent would eliminate roughly $500 million in revenue to the state, based on Department of Revenue estimates, while providing an equal amount of tax relief to workers.
Gov. Deval Patrick and legislative leaders would have to trim funds from spending plans for next year as members and interest groups lobby for enhanced spending on everything from early education and transportation to legal aid.
But the economy has also been showing signs of improvement, with budget leaders anticipating 4.9 percent revenue growth next year and the Patrick administration recently revising its revenue estimates for fiscal 2014 upwards by more than $400 million.
Massachusetts voters in 2000 approved an initiative petition calling for a reduction in the income tax rate from 5.95 percent to 5 percent by 2003. But in 2002, in order to raise $215 million as part of a larger tax package, the state Legislature froze the income tax rate at 5.3 percent and conditioned further reductions on economic growth triggers.
Since then, the rate has ticked down just a tenth of a point to 5.2 percent, most recently falling last month from 5.25 percent. On the current schedule, and assuming an automatic income tax rate cut every January for the next four years, the earliest the rate could hit 5 percent would be 2018, or 18 years after the ballot initiative passed.
DeLeo on Monday reiterated his plan to develop an economic development bill this session that would encourage businesses in Massachusetts to stay, and to attract new businesses from outside the state. He has also conditioned a minimum wage increase on reforms to the state's unemployment insurance system to reduce costs for businesses.
"Our record in terms of providing various tax incentives and tax cuts for various things have happened, but on the other hand you have to have enough revenue that you can operate government as well so I think it's a fine line," DeLeo said. "It's always been my position we don't want to tax so much to the fact that we prevent people from having a good quality of life, but on the other hand you need revenue in order to provide what we always talk about whether its teachers, education, whether it's police fire, public safety, whatever it may be."
The Department of Revenue in December estimated that the reduction in the income tax to 5.2 percent on Jan. 1 would take $65 million off the table for the current budget and reduce estimated tax collections for the fiscal 2015 by $125 million to $140 million.
Based on those figures, another immediate reduction of two-tenths of a point would reduce income tax collections to the state by another $500 million to $560 million for the next full fiscal year, which begins in July.
With his fiscal 2015 budget, Patrick filed a $126 million supplemental budget for fiscal 2014, which ends on June 30, that proposed to expend a portion on the unanticipated revenues.
Secretary of Administration and Finance Glen Shor suggested the remaining cushion would be needed by the end of the year for items like snow and ice removal and the Committee for Public Counsel Services, accounts that have historically been underfunded in the annual budget process.