Are All Those Tax Cuts Valuable?

Everyone in the State House likes to brag about tax cuts. Democrats, Republicans, constitutional officers, Senators, Representatives. They all like to brag.

Fifteen tax cuts in five years. Twenty-eight tax cuts in six. Forty four in 10 years. Now we're up to forty-five.

True? True.

And, according to some financial analysts, those tax cuts add up to millions and millions and millions of dollars each year. Dollars that we could be spending this year to balance the state budget for fiscal year 2003 that starts July 1st.

Tax Cut Number One, July 1990. Income tax rate reduction from 6.25 to 5.95 percent on earned income. Worth $460-million this year. That's $460-million in savings for taxpayers, but $460-million less for the state to spend.

And, if you toss in Tax Cut Number Forty-four here, the Ballot Question 4 which reduced the income tax to 5.6 percent in tax year 2001 and down to 5.3 percent for 2002, and 5 percent for 2003, that's another $148-million, $496-million and $957-million for each of those years.

The most recent cut, Tax Cut Number Forty-five, March 1,2002. My bill, approved in the budget for this year, exempts aircraft and aircraft parts from sales tax. Estimated to be $13-million a year by the House Ways and Means Chair, but only $3 to $8-million by aviation and revenue experts.

Of course, in most cases, tax savings for consumers and businesses are just estimates. With the changing economy, no one can predict what wages might have been earned, what aircraft parts purchased or what capital gains might have accumulated.

But, let's go back to the tax cuts.

In between One and Forty-five were some pretty complicated tax cuts. Investment tax credit for leased equipment. Bank tax reform. Modified tax credits for defense manufacturers. Apportionment reform for mutual fund companies. Offsetting capital gains with capital losses.

And some interesting ones. Allowing all adoption expenses as deductibles. Harbor maintenance tax credits. Tax credits for corporate research. Increasing the no-tax threshold for low-income families with children.

Remember 1996 and 1997? The state had so much money coming in that you got an increase in personal exemptions. Massachusetts residents saved about $150-million at the time.

There were even tax credits for septic tank repairs. The tax rate on interest and dividend income was decreased from 12 to 5.95 percent. And things like services (accountants, lawyers) and internet access were made tax-exempt.

Other tax cuts probably affected you even more. Personal exemptions for single parents increased from $2,200 to $3,400. Estate tax exemptions increased to $600,000. Tuition tax deductions if the cost is more than 25 percent of adjusted gross income. The "under 12" deduction went from $600 to $1,200. Personal tax exemptions doubled.

Senior citizens got "circuit breaker" tax credits against property taxes. Deductions for elderly and disabled dependents were created. Charitable deductions, rent payments, child care. You got tax breaks for them, too.

And, yes, there were others. In deed, all 45 are accounted for.

Total loss of income to the state for all of them? For this fiscal year, more than $4-billion. For fiscal year 2003, it looks like it will hit $4.6-billion.

So, the state is thinking about eliminating some of the tax increases already in effect. Particularly, your lower income tax rate, approved by voters. And, we're thinking about increasing other taxes. Examples? Five cents on a gallon of gas, somewhere from 50 cents to a dollar on a pack of cigarets, taxes on beer and alcohol.

What would you like to see changed? Increased? What's important to keep the way it is?

That's the revenue end of the budget-and the state is already borrowing money to pay its bills this year. It looks like a $2-billion deficit looming. So, in addition to finding tax revenue, we'll be looking at budget cuts as well.

The budget process this spring won't be pretty, I assure you, but I welcome your input on ways to both increase revenue and decrease spending.

(Contact Rep. Hahn at 413/568-8991 or 617/722-2220. Write to her at P. O. Box 1248, Westfield, MA 01086 or State House Room 254, Boston 02133. E-mail is Rep.celehahn@hou.state.ma.us and web site is celehahn.org)

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