A Return to Taxachusetts?
Massachusetts has a pretty lousy national reputation when it comes to taxes, having been tarred with the nickname “Taxachusetts” back in the 1970s. And back then, taxes were quite high! As MassBudget points out, in 1977, our state and local taxes as a percentage of personal income were 13.8 percent, or the third highest in the country. But after a series of tax reductions, including drops in both property and income rates, we’re actually ranked 25th among states, with state and local taxes adding up to 10.2 percent of personal income.
That’s about to change.
Tonight, Governor Deval Patrick delivers his annual State of the Commonwealth speech, at which he is likely to propose a hike in the income tax rate from 5.25 percent to 5.66 percent. It’s expected to bring in around $1 billion annually. In choosing the income tax hike, Patrick rejected a number of other options, including an increase in the state’s gasoline tax, a hike in the sales tax, an increase in public transit fares and highway tolls, or a “vehicle miles traveled tax.”
What will be spending the new-found cash on? Education and transit. As the Globe noted, Patrick wants to “modernize and expand its transit system” by adding rail service from Boston to New Bedford/Fall River (and the Cape!), and plow some funds into the MBTA. He’d also like to introduce universal access to early education and increase community colleges’ workplace training—a subject Boston covered back in June.
Why, though, did Patrick choose the income tax increase out of all the options? Mostly because he had to. The easiest way to raise big revenues is through income or sales taxes, since both are broad-based measures capable of hitting a lot of people. The sales tax option, though, is less desirable, since Patrick already raised it in 2009.
As for the other options: An increase in the gas tax and transit fares would be a seemingly obvious way to raise funds for transportation, but in order to reach the needed $1 billion, they’d have to be astronomically high. The gas tax would need to more than double—to 51 cents a gallon, the highest in the country—to reach $1 billion in revenue. And it’s remarkably unpopular with both politicians and the general public. Legislators rejected a 2009 gas tax hike, and a recent poll showed that 83 percent of state residents didn’t want to see a gas tax. Hitting up the actual transportation system is just as tough: MBTA fares and highway tolls would need to be raised 5 percent every two years in order to bring in that kind of revenue, and based on the anger over this past year’s MBTA fare increase, that’s not a fight any politician wants to be having regularly. The income-tax increase was really Patrick’s only option.
Oh, and one final point: Patrick’s education and transit proposals add up to $1.5 billion this year and $2 billion in years ahead. Which is quite a bit more than the $1 billion the income tax hike will raise annually. How to make up the difference? You got it: More taxes and fees.