Increasing Voices on Revenue Options

We all rely on Massachusetts public structures to provide clean water and public transportation, to educate our children, to control communicable diseases, and to perform countless other functions that are vital to the personal and economic health of our state.

9C cuts to our public structures are already occurring due to our state’s budget gap, and more cuts are likely to be imposed during the FY10 budget debate. Now is the time that we must begin to decide what we want and need from our government, and how we are going to pay for it.

The public is already analyzing and discussing our many options:

One of the most visible debates over the past few weeks has been over the hike of tolls on the Massachusetts Turnpike. Visible and organized opposition in East Boston has not been enough to shake Governor Patrick’s support for the toll hikes.

Friday’s Boston Globe contained two editorials on revenue issues: “The State’s Binge Purge Diet,” focusing on MassInc’s report on Capital Gains taxes, and “Go Slow on Pike Privatization,” warning pitfalls of this potential revenue option.

An article in Sunday's Globe surrounding increasing property taxes across the state stated that “cities and towns - which are more reliant on property taxes to balance their budgets than communities in most states - are hoping for continued levels of state aid and are looking for new ways to raise taxes.”

The increasing number of voices opining on revenue options can be overwhelming. At ONE Massachusetts, we are working hard to provide basic tax and budget policy trainings on the different revenue options available to our state. Below the fold is a quick look at the revenue options mentioned in the articles mentioned above:

Massachusetts Turnpike Toll Increase

Pro: Tolls are tied directly to the public transportation structures they seek to support, and put a premium on use of the Massachusetts Turnpike, decreasing the burden of automobile traffic on the Pike.

Con: Tolls, like other usage fees, are very regressive. Drivers who pass the tolls pay a set fee, regardless of their income. And because of the toll collection process, drivers in limited geographic areas bear the burden for the entire state.

Gas Tax

Pro: Unlike the Pike Toll hike, the gas tax is shared by all drivers across the Commonwealth, spreading the burden beyond those who use specific routes.

Con: The gas tax is still regressive, affecting lower-income drivers more deeply than middle and upper-income drivers.

Capital Gains Tax

Pro: The capital gains tax is much more progressive than most other revenue options – second only to the dividend tax. According to the Center on Budget and Policy Priorities, "Over half — 54 percent — of all capital gains and dividend income flows to the 0.2 percent of households with annual incomes over $1 million."

Con: The capital gains tax is unstable, due to its connection to the health of the stock market, and so its revenues are better-suited for one-time expenses, or for deposits to the rainy-day fund, rather than ongoing budget items.

Service Tax

Pro: A service tax would be more progressive than the general sales tax because lower-income taxpayers tend to spend a greater percentage of their income on goods (a lawnmower) rather than services (hiring a landscaper).

Con: The potential impact of a service tax may be overstated in general, as our state’s largest services are education and health care, two professional areas that most Massachusetts residents would not want taxed. Another drawback is that taxing business services, such as corporate consultants and attorneys, results in double-taxation. Businesses are taxed for those inputs as well as their final outputs.

For a broader look at budget and revenue policy, a good source of information on our state tax system is Massachusetts Budget and Policy Center’s report – Understanding Our Tax System: A Primer for Active Citizens (October 2008).

Still want to know more? Request a ONE Massachusetts training event for your organization or your community!