Think You’re Paying Too Much in Taxes?

You probably have your tax returns in the mail by now…or, will have by Tuesday.

At least, if you live in Massachusetts and file your taxes in Massachusetts, you get a one day reprieve. Monday is a holiday–Patriot’s Day.

That’s the good news. But not all the tax news is good these days. You’ve heard some people and politicians saying "raise taxes" or "freeze the income tax rollback" to meet the state’s deficit.

So, let’s take a look at the income taxes we pay.

According to the most recent data available, the 2000 Annual Survey of State Tax Collections published by the U. S. Census, Massachusetts ranks 1st for personal income taxes per capita. Our tax for each person? $1,424, some $200 more than New York which comes in second and more than twice the national average of $692.

What does that mean? What’s the tax rate?

Well, for 2000 you paid 5.9 percent of your income in state taxes. Last year, 5.3 percent. And the rate is scheduled to go down to just 5 percent next year.

That’s the "freeze the rollback" scenario–stop where we are at 5.3 percent or even increase the rate back to 5.9 percent.

Even if the current rate had applied in FY2000, instead of 5.9%, Massachusetts would still have ranked 1st in personal income taxes per capita, and 6th in personal income taxes as a percent of personal income.

And, some people pay more, of course than others, so that per capita state tax collections are $2,544–5th in the nation, and a third above the country’s average of $1,921.

Do we really want to increase income tax? I don’t think so.

And, of course, that’s only your state income tax. So you can add your Federal income taxes on top of your debt to government. Along with excise taxes, sales taxes, property taxes, cigaret taxes, gas taxes. Did I miss any?

Well don’t get too depressed, because in the last decade, we’ve cut taxes 42 times. I’ve already written about the range of those taxes, but it’s important to remember that when individuals have more discretionary income and when businesses can put their money back into the economy instead of sending it to Boston, we all benefit.

As Governor Swift pointed out in a speech last week, tax cuts–not tax increases–generate jobs and growth.

Luckily, while we were cutting taxes during boom times, we also built up a reserve of $3.1-billion. Money that we’re going to need–and in fact are already spending–during these changing economic times.

Again, not all the news is bad. Even in this recession we have the lowest unemployment rate of any industrial state, and it is below the national average.

So, how do we close the gap between income and outgo? The House Chair of Ways and Means has suggested looking at 16 different tax increases that would bring in $2-billion. Others suggest adding additional taxes on things like gasoline and cigarets.

Well, dastardly as it may seem, I think we can cut spending. Of course, none of the cuts will be popular; every line item in the 356 page budget has a constituency.

We can use some of our rainy day funds; after all, it’s raining.

And we can delay putting the extra money into the pension fund for two or three years. The pension fund is adequately funded. We have been putting in extra money to make up for deficiencies during the 1980s.

And, like other states, we can use more of the tobacco settlement money. We spent half and saved half last year. The year before, we saved 70 percent and spent 30 percent.

None of these ideas would worry the bond rating companies, by the way.

There are other ideas afloat. Changing the lottery prize payout, for example. We now have the highest rate in the country with 71 percent of your spending being returned as prizes. The Governor suggests going down to 63 percent payout. And, we would still have the fourth highest payout in the country.

It would mean fewer tickets sold, but generate an additional $274-million for local aid. Westfield is scheduled to get $5.98-million in the proposed FY2003 budget.

Oh. Local aid. That is the money, your tax dollars, that is returned to cities and towns each year. And the threat is that Westfield, which got $26.3-million this year and which would get $28.75-million under the Governor’s proposed 2003 budget, and all the other municipalities, might see a 5 to 10 percent cut. Which puts the city in a bind. It will, like the state, have to cut spending, or rely on reserves.

The extra money from the lottery, and the pension refinancing, would bring in more combined than freezing the income tax and raising the cigaret tax, according to budget analysts in the corner office.

In two weeks, your legislators will begin deciding what to do. How to face the recession head on. Cuts? Taxes? Where? When?

Week after next, Representatives begin a series of meetings on revenue, to determine just how much we can spend in Fiscal Year 2003 which starts July first.

The following week, we begin budget negotiations. To determine how we want to spend your tax dollars. All $23.5-billion–or almost $3,700 for every man, woman and child in Massachusetts.

Your input is always welcome.

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