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The best way to provide tax relief now

May 3, 2005 - Governor Romney has renewed his call for a further cut in state taxes by reducing the income tax from 5.3% to 5.0%. While April revenues were encouraging, this revenue increase may only help us to have a balanced budget. Implementation of the additional tax cut now could lead to further fiscal problems over the next year, especially if the spurt in revenues is only temporary rather than sustained.

If we are actually able to reduce the tax burden, I prefer to see increased local aid to ease the pressure on the hard-pressed property tax payers (including renters who pay through higher rents.) By easing the property tax, we help our hard-pressed senior citizens to keep their homes and we continue to help to attract business growth. Reducing the income tax to 5.0% would not help most senior citizens since they are below the taxable income limit and would not encourage business expansion since business wants a stable economic climate.

Another way to use any surplus to help taxpayers is to utilize it to ease the pressure on the health system’s Uncompensated Care Pool and payments to medical providers to strengthen our hospitals and to reduce the cost-shifting that keeps driving up the cost of health insurance premiums for everyone in the state. Such steps, as well as reducing the number of uninsured, would be a major step in the health of all of our citizens.

Michael J. Widmer of the Massachusetts Taxpayers Foundation, a business-funded nonprofit that monitors taxes and government spending, has told us that the April revenue growth probably will allow the state to have a structurally balanced budget in the current fiscal year and in fiscal 2006. Nevertheless, he said the state cannot afford the tax cut when its mandatory spending is growing at a faster rate than reliable revenue, such as income-tax withholding. Massachusetts Taxpayers Foundation has a much better track record at predicting state revenue and expenditures than the Romney Administration. I believe it’s far more prudent to follow their advice than to jump at a purely political approach.

''The very strong April, seems to be tied principally to capital gains," Widmer explained. ''It's good news to see this kind of revenue increase, but as we saw in 2002, it can very quickly evaporate." He referred to the stock market slump that followed the bursting of the Internet bubble and the Sept. 11, 2001, terrorist attacks.

''It's heavily cyclical and volatile by nature," Widmer said, ''and so we should treat it with caution, in terms of building in tax cuts or spending increases based on it."

Cutting the tax rate from 5.3 percent to 5 percent would cost $225 million in fiscal 2006. But it would cost more than twice that much in fiscal 2007, when it would be in effect for the entire calendar year.

In a full year, the cut would be worth about $146 to a married couple earning $60,000 a year and $133 to a single person earning $50,000. This would be the cut that most Massachusetts residents would receive since these amounts represent the median income in the state. The wealthiest among us would primarily benefit from an income tax cut, while most taxpayers would benefit by increasing local aid and reforming health insurance coverage. Let’s not jump too quickly, and when we determine if revenue gains are sustained, we should put some of this money away for the next “rainy day” while applying the balance to property tax relief and health care cost relief as the most responsible direction to take.

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