Progressive Mass member James Conway takes a deep dive into our state's revenue problem -- and what we can do to fix it.
It’s Always Been a Revenue Problem
1. Investment and Big Ideas
The biggest story in Massachusetts politics this summer, and perhaps, this year, is USOC’s rejection of the Boston 2024 Olympic bid. In the aftermath, pundits are wringing hands, various politicians are trying to take credit or deflect blame, and competing narratives are emerging about “what it means” about Massachusetts (are we a parochial also-ran, incapable of big ideas, not ready for the global stage? are we on the cutting edge of rejecting an Olympics project too tainted by corruption and laden with outsized costs?).
So, while the rejected bid will fade into memory, the Olympics discussion offers some takeaways of note for the Massachusetts progressive.
- The pundits and politicians finally agree: Our infrastructure is in dire need of repair and expansion (progressives have been talking about it for a while).
- Bold ideas require bold investments, but we shouldn’t presume it need be molded to private interests like the IOC and Boston 2024.
- Our political class is risk averse, and needed pressure from the outside to have the conversation about investment.
While there was a robust debate about whether or not the Olympic Bid would help or hurt massive public investment, that question has now been settled. The question now is, ‘what’s next?’
This leads us to the second most important story in Massachusetts politics this month: nearly $163 million worth of public investment vetoed by Gov. Charlie Baker. Among the items on the chopping block were essential investments in early childhood education, public higher education, our trial courts, and economic development. These critical investments come on top of projected cuts to the MBTA, during a time when it has woefully underperformed due to decades of deferred maintenance.
Education. Our justice system. Economic development. Transportation infrastructure. These are not pork barrel projects or examples of wasteful spending, but rather, essential services that everyone in the Commonwealth depend on.
Perhaps even more importantly, the quality of our future depends on these public investments. Austerity budgeting, favored by the Democratic Legislature for years and now vigorously championed by our Republican Governor, cannot address our infrastructure issues, avoids the (purely political) risk of raising taxes (to raise revenue) and, instead of bold investments to move Massachusetts forward, commits us to another year of running in place with less.
This is despite the fact that the Massachusetts economy has turned around since the recession:
- Massachusetts now has an unemployment rate of 4.6%, well below the national rate of 5.3%
- While the national economy shrunk by over 1% in the first quarter, ours is expanding at 1% annual growth, powered by continued growth in the biotech and health-care sectors and a rebounding financial services industry.
It’s time to stop cutting and start making wise investments to protect and grow our economic competitiveness.
It’s time to stop pretending like we can have the Massachusetts we want without paying for it. It’s time for elected and citizens to acknowledge: we have a revenue problem, plain and simple, and move next to trying to solve it in the fairest way.Given a decade and a half of deep budget cuts from 2001-2015, the arguments that we have “a spending problem” can no longer be taken seriously.
Some Massachusetts families -- middle- and working class -- are, in fact, “taxed enough already. But revenue is needed -- and must come from somewhere.
How do we get that revenue without asking more from the people who are already contributing their fair share, and are still struggling with rising costs in health care, college and housing costs?
When we make “FAIRNESS” the key—the answer to our revenue problems actual becomes quite clear: moving our MA income tax from a “flat tax” to a progressive tax.
Many people don’t realize that our state income tax is “flat.”
Many assume our state taxes are structured progressively, like the federal income tax and as it is in the majority of states. (Read more on flat, progressive, regressive taxes, at Massachusetts Budget and Policy Center).
In fact, Massachusetts is one of only 7 states that uses the flat tax, which means that a middle-class family pays the same income tax rate as a millionaire (5.25% in Massachusetts).
This flat income tax plays a big part in the two significant revenue challenges facing the Commonwealth:
- Despite being the biggest source of revenue, it is woefully inadequate for needed investments in infrastructure and education (as discussed last section)
- It is a driving factor in the UNFAIRNESS of our tax system.
As explained by the Institute of Taxation and Policy, whether or not a state has a tiered (or “progressive”) income tax is a key driver in the overall progressivity of a state’s taxation structure. What does that mean for Massachusetts, which does not have a progressive income tax, but rather a flat one?
- Top MA earners – those making over $708,000/year -- have an aggregate state tax burden of only 6% of their income.
- Do you make less than $124,000/year? Your tax burden, by contrast, is over over 9%!
- (source: Massachusetts Budget and Policy Center)
It’s not even controversial: most people agree that it does not make sense for the poorest -- those least able to pay -- to contribute more of their income than millionaires do.
Most of us understand that when structured fairly and managed appropriately, taxes are the investments we make in our community together. And overall, despite the ‘Taxachusetts’ epithet coined in the 80s, as a total picture, Massachusetts is actually quite average in how much residents are taxed:
- It’s the WHO and at what rate that isn’t fair. And, the result of giving high income-earners a tax break compared to the rest of us, we’re stuck trying to fund our state with a rate on a par with such powerhouses of innovation like Alabama and Oklahoma.21 states tax their residents more than Massachusetts
- According to the non-partisan Institute on Taxation and Economic Policy, Massachusetts is the 24th most unfairly taxed state in the union
- The Massachusetts 5.25% flat tax is well below California’s top 12.3% rate for its wealthiest
This simply won’t do for a 21st century economy, and it is only because our wealthiest citizens are not paying their fair share of funding and investing in the Commonwealth.
We could address both our revenue problem and our taxation unfairness by changing our flat income tax into a progressive (or tiered) income tax. So why haven’t we yet?
The 16th Amendment to the US Constitution, which enabled the federal government to levy a tiered income tax, passed in 1913. In 1915 Massachusetts adopted Article 44 to the state’s constitution which allowed for a state income tax. A later Supreme Judicial Court decision in the 1920s interpreted Article 44 as mandating specifically a flat tax rate --a decision which some have called into question.
That’s right, thanks to an over 80 year old court decision, a prohibition against enacting a fairer, progressive state income tax, is presumed to be baked right into our state constitution.
As it stands, if we want to
1) Make our state tax system fairer
2) Raise the much needed revenue to properly invest in our communities and our future
Then we must
3) Amend the State Constitution to clearly and unambiguously allow for a tiered income tax.
Fortunately, thanks to long-term grassroots organizing (including by chapters and members of Progressive Mass), as part of the Raise Up Massachusetts coalition, we are poised to do just that: work to get a state Constitutional amendment on the ballot to enact a progressive -- fairer -- income tax. (Raise Up Massachusetts already led the successful 2014 fight to raise the state’s minimum wage and pass Earned Sick Time on the ballot).
We are looking to correct a judicial mistake made over 80 years ago. The Raise Up amendment to the state Constitution will clearly establish a tiered state income tax system, much like we have for federal income taxes and which most other states employ, where the wealthy will finally pay more of their fair share.
With that revenue, we can begin directing $1 billion more to our crumbling infrastructure, the MBTA, and continue to be an education leader rather than cutting early childhood education programs to in order to give millionaires a tax break.
California passed a similar proposal by wide margins, which has enabled Gov. Jerry Brown to pursue a host of critical infrastructure projects, including high speed rail connecting Californian cities and early childhood education.
New York City has already surpassed our minimum wage by raising it to $15/hour, and La Guardia Airport will be getting a $4 billion makeover creating 8,000 middle class jobs, in addition to a wide ranging early childhood education program in New York City.
Predictions that ‘job creators’ would flee California, haven’t panned out. In fact, California has gone from one of the worst managed state finances to having one of the best. And their economy is growing at a faster rate than the nation as a whole and Massachusetts.
With all the talk about making Boston a “World-Class City” for the Olympics, it’s New York and California that are going for the gold -- sowing seeds of economic development by making smart investments now.
While they make investments, we make cuts, because we have insisted on letting the 14,000 highest income earners in Massachusetts get away with paying less than middle-class families. It is time they pay their fair share while we give working families a break and a shot at a better future.
The stakes are high. Previous efforts at passing a progressive income tax have failed, in part because they were too complex or didn’t directly address the key priorities in transit and education.
This time, we are prepared to out-organize those who would protect 14,000 millionaires at the expense of everyone else.
While Gov. Baker and other supporters of tax cuts for 14,000 millionaires wealthy are lining up on one side the rest of us, with passage of this Amendment, 6.7 million Massachusetts taxpayers will be getting a tax cut -- and, a functioning MBTA serving more people in more areas, and a world class education system.
The effort needs 67,750 signatures for the November 2018 statewide ballot. It will also need a quarter of the State Legislature to push the measure forward onto the ballot.
It is time sign on for – and work towards achieving -- a fairer future. We need your signature, your phone calls and letters to your legislators, and of course, your vote. For when we organize, the voices of the many outweigh the wealth of the few.
For this to pass, we need on-going grassroots help! Sign up here and get on board
10. More Resources
- Raise Up Massachusetts main site
- Blogs on our site tagged "Fair Share Amendment" and "#InvestinMA"
[PAGE UPDATED: 8/22/2015]