Nearly half the Massachusetts voters pulled the lever to repeal the state income tax last November. Did they mean it?

By Geraldine Hawkins
December 2002 Print Edition

Nearly half the Massachusetts voters pulled the lever to repeal the state income tax last November, but the Legislature thinks this was only an attempt to "send a message" about lowering taxes.

The initiators of the ballot question, Carla Howell and Michael Cloud, don't agree. They are serious. They say it's possible to repeal the income tax, as long as citizens accept the responsibilities that would accompany the alteration of life in their state.

Most people give Howell and Cloud a tremendous amount of credit for popularizing the subject.

One observer, Prof. David Tuerck, who voted for the repeal, says: "I was surprised the results were so favorable, considering the limited advertising budget the proponents of the measure had." Tuerck is Executive Director of the Beacon Hill Institute, a public policy think tank at Suffolk University, where he also serves as professor and Chairman of the Department of Economics.

"The opponents managed to raise a lot of worries. If the measure had passed, it would have eliminated forty percent of the budget," Tuerck tells MassNews.

"If it had succeeded, it would have exerted a powerful, positive statement, but it would have required a huge restructuring of the system," he says.

Tuerck says that repealing the income tax in Massachusetts "would involve radically transforming the political and social culture of the state." Are voters willing to undergo that much of a transformation?

"An ideal income tax would fall only on consumption," he tells MassNews. The Beacon Hill Institute has not yet devised a concrete plan, but Tuerck says they are discussing a way "to reform the income tax so that it falls only on consumption. We need to convert the existing income tax into a tax on consumption, and reduce or eliminate the sales tax. This would be a promising approach to tax reform."

"We could cut a billion dollars out of the budget without inflicting undue hardship on the poor." -David Tuerck

He says that abolishing the income tax would mean "gutting Medicaid" and the withdrawal of aid from public schools. "Part of my misgivings about this measure" stem from the fact that "it ties into many other issues," he says.

(Medicaid is a federal program, financed by federal, state and local funds, usually for senior citizens, which basically provides them with assistance in nursing homes. It is criticized by some because this means in many cases that the government is paying the cost of nursing home care instead of depleting the person's savings. This often amounts to a gift from the government to the children because the parents' savings will be intact at death and will go to the child.)

Tuerck is not sure that the state is "ready" to repeal the income tax without a plan for dealing with Medicaid and education. "How do you provide health care? A sixth of our population is dependent on Medicaid. We need to push to put some of the cost of Medicaid back on the recipient."

The ballot question "opened up a can of worms," Tuerck says. "We need to address these major issues: Find a way to provide health care that would allow the state and federal government to shrink and still provide care for the indigent," and "stop the lavish outlays in education" which are "without result."

"We could cut a billion dollars out of the budget without inflicting undue hardship on the poor," Tuerck tells MassNews. "If we cut a billion dollars out of both Medicaid and education, it would go a long way toward easing the budget crisis."

Without the income tax, "We would have to substitute a state property tax for a local property tax" to keep public schools open, Tuerck tells MassNews. "Suppose state aid for public schools went away. Rich school districts would be flush. The courts might declare that the unequal financial resources across school districts was unconstitutional. Districts like Chelsea and Brockton could demand that the state fund the system, and the only place the state could go would be to raise sales taxes or property taxes, or force the state to raise revenue some other way."

Thanks to Proposition 21/2, since 1982 the amount that can be raised by property taxes is limited to 2.5% of the total assessed value of a community's levy. In order to raise personal property taxes, special elections would need to be held in individual communities and citizens would have to vote to override the limits imposed by Proposition 21/2.

"The courts have found many illegalities in the way of funding public schools," he adds. Tuerck does not know of specific cases in Massachusetts, but he says there have been documented cases of illegalities in New Hampshire, Ohio, and, "I'm sure in many others."

In the late 1990s, "The state went a long way toward reversing its reputation as Taxachusetts," Tuerck wrote in the Boston Sunday Herald on September 29, 2002. This happened because, "Massachusetts spoke largely with a single voice in favor of cutting taxes. The process culminated two years ago in voter approval, by an 18-point margin, of Ballot Question 4, which cut the personal income tax from 5.85 percent to 5 percent. Question 4 succeeded as the result of a grassroots movement to cut taxes for individuals and small businesses."

Trouble came when four Massachusetts business groups, Associated Industries of Massachusetts, the Boston Chamber of Commerce, the Massachusetts Business Roundtable and the Massachusetts Taxpayers Foundation, petitioned the Legislature to all but ignore the wishes of the voters regarding Question 4.

"The groups essentially volunteered to sacrifice the tax cut least important to them in order to keep intact their own hard-won tax breaks. Among these is the single-sales-factor formula for computing corporate taxes, from which some corporations benefit. What the Legislature didn't do was cut spending," Tuerck writes.

"The single-sales-factor involves corporations. It shifts a corporation's income tax away from out-of-state sales and toward sales which occur in Massachusetts," Tuerck tells MassNews. This benefits corporations like Raytheon [which develops defense technologies and converts them for use in commercial markets] and Fidelity [a brokerage service and the nation's largest mutual fund company] that get mainly out-of-state business.

"The Legislature in a cavalier, irresponsible manner overturned Ballot Question 4. Now we're back in the soup again."

Barbara Anderson of Citizens for Limited Taxation tells MassNews, "Back in 1980, if you got 55% of the vote in a ballot initiative, you were carved in stone. We got 59% of the vote on Proposition 21/2, but the Legislature does not take initiative petitions as seriously as it used to."

Anderson says that before the vote was taken on Ballot Question 4, "The Legislature was prepared to come back and raise the income tax rate from 5.3% to 5.6%, which was last year's rate." What is hopeful, Anderson says, is that, "The public's willingness to repeal the income tax altogether gives backup to Mitt Romney, who has pledged not to raise taxes."
David Tuerck believes that so many citizens voted for Ballot Question 1 because, "The Legislature thumbed its nose at the voters and raised taxes. This should send a signal to the Legislature concerning that kind of behavior."

In his Boston Sunday Herald article, Tuerck predicted that, "The business community is about to discover the Faustian consequences of bargaining with the Massachusetts Legislature." The result will be "Faustian," Tuerck says, "because soon the Legislature will want to increase the sales taxes, and before long they will want to get rid of the single-sales-factor."