So maybe the push for a state income tax repeal doesn’t look quite as captivating or gutsy as its counterpart campaigns to end dog racing or legalize marijuana. But this seemingly dry topic, with its arguably devastating or revolutionary consequences, might just steal the spotlight of this year’s Massachusetts ballot questions.
It would give, on average, a $3,600 tax refund to 3.4 million Massachusetts workers. The ballot question is binding, so if the majority of Massachusetts residents vote in its favor, the tax relief would begin immediately, with a 50-percent decrease in the income tax rate beginning on January 1st, 2009, and the remaining 50-percent abolished one year later. As a result, Massachusetts would join nine other states that don’t tax paychecks: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming, with New Hampshire and Tennessee taxing only dividend and interest income.
Efforts to halt the income tax in Massachusetts have been spearheaded by the Committee for Small Government. Chaired by Michael Cloud (a senatorial candidate on the Libertarian ticket in 2002) and Carla Howell (the Libertarian senatorial candidate in 2000, and the gubernatorial candidate in 2002), the group is no stranger to the ballot. Though their 2002 tax repeal initiative ultimately failed—with 885,683 voters for the repeal and 1,070,668 against it—its capture of 45.3 percent of the vote made the measure a closer call than expected. "Many believed there wasn’t any support whatsoever for our ballot initiative," says Cloud of this previous attempt. Yet both sides of a widening divide seem to take this year’s tax repeal efforts much more seriously after the question’s 2002 results.
Despite opposition from legislative leaders, the income tax question was added to the ballot after the Committee for Small Government collected 76,084 signatories certified by the state Elections Division in December ’07, and another 15,913 in June ’08. The ballot question, if passed into law, would decrease current state revenues by at least 40 percent, since income tax will account for roughly $12.7 billion of the $28.1 billion state budget in 2009.
These numbers are staggering to the Coalition for Our Communities, a group of municipal organizations, labor unions and businesses who seek to defeat the referendum. Steve Crawford, the coalition’s spokesperson, warns that "The magnitude [of the tax repeal] is such that it’ll have a devastating impact on our state’s future."
Michael Widmer, president of the Massachusetts Taxpayers Association, adds that the $12.7 billion from income tax revenues are not directed toward any particular program, but go toward a variety of infrastructure needs, including public education, prisons, police, state parks, Medicaid and human services, to name a few.
Proponents of the repeal argue that the initiative is especially necessary given today’s struggling economy, and this may improve the bill’s chances with voters who are financially struggling. "Taxpayers really need a tax cut! This is not, ‘Gee I wish I had it,’" Cloud says. "We need to recognize how bad things are … A lot of families are just a few thousand dollars from losing their homes. The tax refund money would go to pay off credit card debt, student loans, foreclosures. This money could be used to pay for $4.50-a-gallon gas!"
Widmer strongly opposes the repeal, yet worries that unhappy citizens may vote for it merely to "send a message" of dissatisfaction to the government. "When the conditions are such that people are being squeezed, as they are today in most every aspect of their lives, the conditions are right to support something like this," he explains.
Other benefits boost the bill’s appeal, explains Howell. "Businesses—unless they profit from state government spending in some way—are more inclined to set up shop in a state like Texas, with no income tax, than they are in Massachusetts," she says. As a result "ending the income tax will create hundreds of new jobs, it will stop the exodus of tax payers to other states, and provide an opportunity for workers and businesses to stay in the state."
One study done by the Beacon Hill Institute in 2000 estimated that cutting the state income tax rate from 5.8 percent to 5 percent over the course of three years (the current rate is 5.3 percent) would have resulted in 75,000 new jobs. Cloud himself believes that since the 2008 proposition would cut the income tax by a significantly larger percentage (seven times this number by his calculations), it would result in several hundred thousand new jobs over time.
The Massachusetts communications director for the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) , Tim Sullivan, laughs openly at the claim that a tax repeal would increase jobs, proclaiming that the Beacon Hill Institute’s research has a politically conservative slant. "That is absolutely backasswards logic," he says. "They haven’t had an objective, fact-based study in their history!" The Beacon Hill Institute’s mission, as cited on its website, is "grounded in the principles of limited government, fiscal responsibility and free markets."
The AFL-CIO is a member of the Coalition for Our Communities, but Sullivan insists this isn’t simply a union issue. "We’re citizens first and taxpayers first. The fact that we’re union members means that we kind of understand that we’re all in this together … we believe in collective bargaining, and that’s what government is," he says. "Obviously, police officers, firefighters, teachers and municipal employees all rely on taxes for their salaries and benefits."
But Cloud suggests some of these government-funded jobs are unnecessary, citing the price tag on public school systems. "We believe these prices are ridiculously high," says Cloud, offering private education and homeschooling as better alternatives. "A parochial school gives a better education, has a lower dropout rate, but only spends $3,100 per year."
Howell and Cloud’s fight for the tax repeal is centered around their faith in small government. "Big government often harms the very people that it is intended to help," says Howell. "It forces people to give up hard-earned income to pay for wasteful bureaucracy." Howell and Cloud also view small government as an opportunity and incentive for people and businesses to grow, and save their money to support their families, pay off debt and live "the kind of lives that they want to," says Howell.
Crawford is less optimistic. "The impact that this would have on our state’s economy is frankly unknown," says Crawford. "But it’s certainly not good."
Widmer is slightly more apocalyptic. "This is so sweeping, this would create political and fiscal chaos," he says. "In simple terms, this is 40 percent of your budget, so every agency would sustain a 40 percent cut." Opponents of the bill see a lose-lose situation, with only two courses of action upon its passing: dramatically reducing all programs across the board, or raising property or sales tax in order to make up the difference.
Massachusetts Senate President Therese Murray attacked the initiative to abolish income taxes in her June 12th Chamber of Commerce speech, looking to Florida’s high property taxes and their effect on the real estate market there. "According to a Zogby poll conducted last year," she said, "unreasonable property taxes are the major reason why 37 percent of Floridians are considering moving out of the state." In some districts, where Floridians have yet to qualify for state property tax-caps, residents have seen their property taxes increase more than 100 percent over the past several years. But to make up for an income tax repeal with a property tax increase, the Massachusetts Legis
lature would have to address Proposition 2 1/2—a ballot initiative that went into effect in 1982—which currently limits the state’s property tax increases.
Murray also voiced concerns about the inequity of those who might profit if the ballot passes. "By eliminating the income tax and destroying services, or by raising property and sales taxes—low-and mild income residents suffer the most."
The ballot question’s defenders are convinced that the legislature can find money elsewhere to make up for the repeal. "The state spends $8-$14 billion off-budget … this is the dirty little secret the state legislators don’t want to talk about," Cloud says. MassINC—a public policy think tank—confirms that off-budget spending occurs, with findings that in 2006, the state’s budget was $25.6 billion, while state spending totaled $37.5 billion.
Cloud believes that taxpayers’ dollars subsidize unnecessary spending, including the expansion of state tax breaks for the film industry. "They’re squandering money on a scale that’s unheard of!" he exclaims.
Howell agrees, claiming that "government agencies, by their nature, are wasteful and unaccountable."
Cloud calls for more government transparency to stop off-the-books spending. "If there was a corporation who engaged in these practices, legislatures would call for hearings and transparency. They ought to be doing the same thing with themselves! Taxpayers should be able to look and say—’Oh, this is being well-spent.’ That’s how you get people involved and have practical democracy."
Cloud cites a 1978 California law, Proposition 13 (aka the "People’s Initiative to Limit Property Taxation"), as a successful example of transparency eliciting government efficiency. After reducing property taxes by 57 percent on average, Cloud states that "everyone watched the state and local government with careful eyes"—as a result, police facilities and other services were not impacted, he explains.
But Murray argues that tax money is not wasted, but that it’s important in sustaining and improving necessary public services. "Municipalities are already struggling to maintain their local budget. Rip out 40 percent of the state revenues they rely on and watch our schools and local services fall apart. It’s really that simple." Sullivan concurs, saying, "There isn’t an enterprise in the world that has 40 percent frivolous waste." Bob Bliss, communications director at the state’s Department of Revenue, adds that "cities and towns get about $5 billion in various forms of state assistance."
The Committee for Small Government faced a challenging timeline of gathering signatories in order to make their way onto the ballot. However, the group may still face an uphill battle till Election Day concerning money. "We’ve spent everything we have to-date just to get on the ballot," says Howell. Despite likely fundraising and donations, the Committee for Small Government will be hard-pressed to generate an advertising campaign budget that is comparable to their opponents.
Sullivan knows that the decision is ultimately up to voters. "The Legislature doesn’t get to vote on this, the people do. And I think people are going to choose schools and clean drinking water and parks that are clean and safe for our kids to play in," Sullivan says. "Taxes are like the membership fee to society, and as long as they are fair—which they are—people will understand that they get a lot in return."
Nonetheless, Cloud believes that voters "are hungry for some breathing room" in today’s economy. The deadline to register to vote is October 15th. "Hungry" or not, cast your ballot on November 4th.