Governor Patrick’s Tax and Spend Vision for Massachusetts
In a recent budget proposal that exemplifies the “tax and spend” approach to policymaking, Massachusetts Governor Deval Patrick has requested a 1 percentage point hike in the state’s income tax rate, alongside multi-billion dollar increases in infrastructure and education spending. Governor Patrick’s proposed income tax hike will increase rates to 6.25 percent for all earners, exceeding the top rate of 5.99 percent in neighboring Rhode Island. The new spending proposals, which are expected to increase outlays by $1 billion per year, come on the heels of a projected $1.3 billion budget shortfall for the 2013 Fiscal Year.
Governor Patrick’s proposal also includes a reduction in the state’s sales tax rate, from 6.25 percent to 4.5 percent. Described by some as an attempt to improve the “fairness” of the state’s tax system, the reform still fails to place Massachusetts on competitive footing with nearby New Hampshire, which does not impose taxes on sales or personal income.
Arguing in favor of his sales tax proposal, Governor Patrick recently stated that the sales tax “is widely regarded to be the most regressive tax that states impose.” This is an interesting position for the Governor to take, considering that he raised the sales tax rate from 5 percent to 6.25 percent just four years ago. At the time, Patrick said that the sales tax hike would “bring our budget into balance, offset the need for even more difficult cuts and expand opportunity throughout the commonwealth.”
Paul D. Craney, Executive Director of Massachusetts Fiscal Alliance, an organization that promotes fiscal responsibility, commented on the economic effects of Governor Patrick’s proposed tax increase. “Many of the proposals will cause our state to become less competitive with neighboring New England states,” remarked Craney. “One of the best ways we can attract more revenue is by implementing economic reforms and incentives to keep jobs, people and income in Massachusetts. Our goal should be to become more economically competitive with our New England neighbors and attract growth.”
State-level economic competitiveness is the primary issue explored in ALEC’s annual Rich States, Poor States report. The report has demonstrated for years that the nine states with the lowest personal income tax rates, on average, experience higher rates of growth than the nine states with the highest rates. These results provide a valuable example for policymakers seeking to boost state-level economic performance. States that wish to experience economic growth must limit taxes, reign in spending, and allow the private sector to do the investing.