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Tax fairness commission recommends graduated income tax


By Colleen Quinn


BOSTON — A 15-member special commission charged with looking at ways to make the state’s tax code simpler and fairer is recommending a graduated income tax.

A graduated income tax, which imposes higher taxes rate on those who earn more and lower rates on those who earn less, was rejected several times by Massachusetts voters and lawmakers have shown little interest in the idea. Massachusetts taxes income at a flat rate of 5.2 percent.

The Tax Fairness Commission met for two hours Tuesday, finalizing the report it plans to present to the Legislature on March 3. There were five major recommendations, including instituting a graduated income tax through a state Constitutional amendment, and a recommendation for the Legislature to prepare for an online sales tax, should it be enacted by Congress.

For the meeting materials, including a draft report, go to:

A third recommendation suggested a set of proposals to address inequalities for low- and middle-income taxpayers, which includes expanding the property tax circuit breaker to make all low-income families and individuals eligible for the tax break now available only to senior citizens.

The commission also recommended doubling the current personal exemption on single tax filers, heads of household, and those who are married filing jointly.

While they voted separately on each recommendation, the commission agreed not to vote on the final report because some members felt they could not endorse all of the recommendations, and would be forced to vote no on the entire report.

Before they opted not to take a single vote on the entire report, Michael Widmer, president of the Massachusetts Taxpayers Foundation, said he planned to vote against the final report, largely because of the graduated income tax recommendation.

Massachusetts’ economic climate is not competitive, and the middle class is being squeezed, Widmer said.

The graduated income tax would be a setback to the state’s economy because it will impact individuals who are making decisions about locating and creating jobs, Widmer said.

Proposals to create a graduated income tax have been defeated by voters at the polls five times, Widmer said, most recently in 1994.

Sen. Michael Rodrigues (D-Westport), who co-chaired the commission along with Rep. Jay Kaufman (D-Lexington), said he agrees with many of the concerns Widmer expressed about the state’s competitiveness, but said the problem is not necessarily tax policy.

“It is unemployment insurance. It’s wages. It’s cost of health care. It’s the cost of housing. It’s the cost of transportation,” he told the News Service. “It’s all the sundry costs that go into the big umbrella of competitiveness.”

Rodrigues said there was a lot of debate within the commission about whether or not Massachusetts is above or below the national average on taxes. “But certainly, I think most of us agree, as far as business costs, we are a high cost state to do business, but not as specifically as it relates to tax policy,” he said.

In October, the commission digested data on taxes paid as percentage of income.

The lowest 20 percent of earners in Massachusetts during 2011 paid 12.2 percent of their earnings in income, sales and certain excise taxes and the highest wage earners paid 5.7 percent, according to Department of Revenue data presented Tuesday to members of the new Tax Fairness Commission.

Rodrigues said the commission tried to be careful not to be too specific with any of the recommendations.

“We wanted the real specifics, and the dotting the I’s, crossing the T’s to be left with the Legislature because there are lots of dynamic analysis,” Rodrigues said after the meeting. “It is complicated and we don’t have time nor the capabilities, if you will, to really engage in that level of analysis. So that’s why we left that open.”

The commission was charged with recommending ways to make the tax code simpler and fairer while promoting economic growth and staying competitive with other states. Yet it is unclear how much sway the commission will have with the Legislature.

Legislators went through a grueling tax debate last year, and do not appear ready to reopen a discussion about taxes.

Lawmakers rejected a plan Gov. Deval Patrick proposed that would have raised $1.9 billion in new revenue for the state by increasing the income tax rate, lowering the sales tax rate and eliminating dozens of personal and corporate tax exemptions and deductions. The governor argued his plan would not only generate the money needed to invest in transportation and education, but make the tax system more equitable for people across the income spectrum. Lawmakers opted for a smaller package of tax hikes adding to the costs of gasoline and tobacco.

During the meeting Tuesday, Greg Sullivan, research director from the Pioneer Institute, offered four proposals that dealt with taxation of corporations. After a lengthy discussion, the commission voted 11 to 2 to recommend that the Legislature and governor “explore” the four proposals, but they disagreed about whether the ideas were in fact the right moves to make.

The first one, according to Sullivan, would help Massachusetts reestablish itself as a national leader in research and development by attracting businesses and jobs to the state through a “super” R&D tax credit. The credit would allow qualified research expenditures in excess of 150 percent of the prior year’s level to be eligible for a tax credit, limited to no more than 50 percent.

“To me, if this commission wants to send a signal to make it fair for R & D companies to really prosper here, I really hope we could adopt this,” Sullivan said.

The second proposal would lower the minimum corporate tax paid by small corporations. There are 37 states that do not have a corporate minimum tax, Sullivan said. Massachusetts is the third highest in the country at $456. Sullivan said it is unfair to companies that are just starting out.

The third proposal reduces the corporate income tax – an idea which Sullivan said did not seem to garner much support from the commission.

The fourth proposal recommends reducing the small business tax rate to 6.5 percent, down from its current rate of 8 percent. New York lowered the small business tax rate with success, he said. It would apply to companies with taxable income of $290,000 or less.

The commission was created by a Sen. Karen Spilka amendment to the transportation financing package the Legislature approved last July. The panel’s work comes on the heels of recommendations made recently by a Tax Expenditure Commission that took a look at tax exemptions, deductions and subsidies extended to individuals and corporations to relieve tax burdens on certain populations and spur growth.