As part of our Shared Prosperity Agenda blog series, Kurt Wise of MassBudget shares their on progressive revenue. MassBudget is an independent nonprofit organization that provides non-partisan research and analysis of state budget and tax policies, as well as economic issues, that affect low- and moderate-income people in Massachusetts.
The state budget, and the taxes that fund it, are the primary way we pay for the things that we do together through government. These include police and fire protection; public education; roads, bridges and public transportation; a safety net for when people face hard times; and more. These investments can both make life better for our families today and build a foundation for a stronger economy in the future.
Beginning in 1998, a number of significant changes were made to the state tax code, including a series of cuts to the state personal income tax. These cuts reduced the Commonwealth's capacity to fund essential services.
Three of these income tax cuts were particularly costly to the Commonwealth:
- a cut from 5.95% to 5.3% in the tax rate applied to wage and salary income,
- a cut from 12% to 5.3% in the tax rate applied to dividend and interest income, and
- a doubling of the value of the personal exemption from $2,200 to $4,400 for single filers, and from $4,400 to $8,800 for married couples.
The combined effect of these three cuts is now a loss of some $3.2 billion in annual revenue. (Read more about the effects of income tax cuts here.)
Other factors also have affected state revenue collections in the years since 1998. These include state-level tax policy decisions, as well as changes in consumer spending patterns and in the structure of the Massachusetts economy.
While there have been several tax increases over this period, the net effect of all increases and reductions since 1998 is that total tax revenue as a share of state personal income has declined by about one percentage point (from about 6.3 percent in FY 1998 to about 5.2 percent in FY 2013). This amounts now to a loss of well over $4 billion in annual tax revenue for the Commonwealth.
This substantial decline in revenue has led to deep cuts to program areas across the budget. Cuts in funding for essential public investments can compromise the state's long term growth potential and harm the current and future well-being of the people who live and work here in Massachusetts. (Read more about the effects of tax cuts on state funding here. Explore our online Budget Browser here.)
While the budget cuts caused by the tax cuts of the past 15 years have affected everyone who relies on goods schools, roads, public safety and the many other things we do together through government, the primary beneficiaries of these tax cuts have been the highest income residents of the Commonwealth.
High income people in Massachusetts pay a smaller share of their income in taxes than middle and lower income people do, and the income tax cuts of the last fifteen years – particularly the large cut in the tax rate on dividend income – have made our tax system still more unfair. (Read more about tax fairness here.)
See Progressive Massachusetts' full statement on revenue here.
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