Dear Neighbor,
There's a lot of discussion about what makes Massachusetts "competitive." People in public life and in the media continue to assert that we have to cut taxes on the wealthy and corporations to stop their leaving for other states.
You may have read my previous newsletter about this. Just this week, the Globe accused the legislature of "dithering," while the conference committee resolves important differences between the House and Senate versions. At least they acknowledge that the House bill would phase in a billion dollars in tax cuts (= spending reductions). (See end of newsletter for colleagues' comments about the reduction in short-term capital gains tax rate which the Globe supports.)
Do it yourself!
Mass Taxpayers just released an extremely helpful comparison of the House and Senate bills, which might help explain why negotiations are complex and important. What would you recommend to the conference committee?
Minority leader Bruce Tarr often presents visual aids during debate. When he argued that taxes are the main barrier to "competitiveness," I presented some home-made charts with new and contradictory information.
Here are some of my remarks. The charts with numbers are based on my home-made charts.
Public conversation about competitiveness has focused on data on out-migration and where MA is an "outlier."
Many people are alarmed that "110,000 people have left Massachusetts." But other people have moved in. The net outflow last year was around 7700. In previous years there would have been more international immigration, so there was net growth every year until the pandemic combined with immigration restrictions.
For decades, the largest number of people who left Massachusetts moved to Florida or New Hampshire. People retire to Florida, mostly because of the weather. And we all know young families who move to New Hampshire so they can afford to buy a home, even with a yard. The next 4 states where people move are either next to us (New York, Connecticut and Rhode Island) or have better weather and similar jobs (like California).
How do those states compare on income taxes. Florida and New Hampshire have lower income tax rates. As many people move to the next four states as to Florida and New Hampshire. Those states have higher income taxes.
We’re not an outlier on taxes.
The conservative Tax Foundation ranks all states on their business tax climate, including all taxes. Sure enough, Florida and New Hampshire are rated high. (Not as high as Wyoming, South Dakota and Alaska; people leave Alaska at the same rate as Massachusetts.) But Massachusetts ranks right in the middle, while the other four states rank at the bottom.
But we are an outlier on other costs.
We're an outlier on housing costs.
We have the third highest housing costs in the country. Boston is the second highest city for rental cost.
Housing is ranked by every business group as the greatest barrier to recruiting and retaining staff. We address housing costs in this tax bill by adding money for Low Income Housing Credits and Housing Development Incentive Program (although HDIP has been criticized for not requiring any affordability). We also include money for housing in the budget, which allocates 99 times more funds overall than this bill.
Building enough housing, particularly affordable housing, will cost a lot of money, so we need to have enough revenue to support that.
We’re an outlier on transportation.
Mass. Taxpayers Foundation reports that we’re #2 in the country in traffic delays, and #3 in the world. Building and maintaining reliable and affordable transit will cost a lot of money, and we need to make sure we have enough revenue.
We’re an outlier on child care costs.
The World Population Review reports that we have the highest child care costs in the country. In this bill, and more importantly in our budget, make steps to make child care affordable.
Am unwise tax cut
It's disappointing that the Globe says we should reduce the tax on short term capital gains. It's too bad they didn't listen to the Senate debate! (scroll down to the session)
Sen. Jason Lewis offered a concise list of reasons to oppose this tax cut:
1. 80% of the benefits would go to the top 1%
2. it would not contribute to economic growth
3. it would mean at least $130 million a year that can't be spent on housing, child care, transit, child care and other things that would help businesses and competitiveness.
Sen. Lewis' speech is at minute 26:40; other good points were made by Sen. Rodrigues (17:45) and Sen. Montigny (especially at 23:50 where he tells about a recent short term capital gain he made).
Competitive for whom?
Most of the tax cuts proposed in these bills would not be nearly enough to keep the age group which is most likely to leave. Others would be unlikely to appeal to the young people who are the most likely to leave.
Tax policy is only one, and not the most important way, we keep and make MA competitive. While important, this bill is only 1% the size of our budget. Spending on housing, transit, child care, and education make a difference for the young people who are leaving.
Conclusions
I strongly support the Senate tax bill and hope most of it is adopted in the conference committee. It's not exactly the bill I would have written, but it reflects a balance of members’ opinions and the needs of different areas.
It reflects the principles articulated by Senate President Spilka and shared by senators: it's progressive and permanent, smart and sustainable.
The tax system has to be resilient against surprises like the $3 billion in lost revenue due to 62F refunds last fall, the $1 billion drop in April revenue, and the potential $2.5 billion in Unemployment Insurance mischarges.
The tax bill can help keep MA not only competitive but attractive to people and businesses, but it is by any means the only solution.
The tax system has to be adequate to support the things that people need to live in MA: housing, transportation, child care and education are only some.
As always, I appreciate hearing your thoughts!
Stay in touch,
Pat Jehlen