By J. E. Haskins
November, 2000

See also: Mass. Can't Afford to Lose Highly Skilled
               Teachers' Unions Sweet-Talk Taxpayers

Cutting Massachusetts' income tax rate to 5% from the current 5.85% would put 93,000 workers into new jobs by 2003, says a respected economic think tank. 

These would not be low-paying positions, which in the current labor shortage often cannot be filled, but actual placements of highly-skilled employees in positions at companies who need their services, according to the Beacon Hill Institute for Public Policy Research.

It would help alleviate the loss of a flood of skilled workers and business migrating to states which have less hostile tax environments, analysts at the Institute say. 

Moreover, the Institute describes a rollback of the tax rate as "eminently affordable," despite tactics being used to frighten the public into accepting the highest personal income tax rate of any state in the country on a permanent basis. 

"High taxes threaten the state's ability to attract qualified workers, and thus remain competitive," says the Institute, underscoring the likely economic consequences of a failure to pass the Question 4 initiative in the election.

The recent views of chief executive officers indicate a 5% drop this year in Massachusetts' appeal as a place to establish, run or expand high-tech firms - the first decline in nine years. 

Moreover, the CEO's expressed decreasing faith in the overall outlook for businesses operating in the state, referring to "a growing anti-business sentiment in Massachusetts' legislature and a tight labor market," according to the Institute, at Suffolk University. The local branch of the National Federation of Independent Businesses has endorsed the tax rollback effort. 

"Trickle Out"
The current economic expansion has restructured the state's economy in ways which have made Massachusetts' income taxes - which are the highest in the country - a serious threat to continued economic growth here, the Institute says. Among the changes is exceptionally strong demand for skilled workers, a factor which the Institute says works temporarily to the advantage of states with relatively strong technical educational institutions and technically educated workforces, like Massachusetts. 

But the institute warns that the same changes will increasingly work against states whose high living costs and taxes will make them less competitive against other states. 

"The advent of the footloose and fickle techies and dot-com businesses should serve as a wakeup call," says the Institute. Those workers and businesses which compare Massachusetts' high income tax and cost of living to Texas' low cost of living and no state income tax will find the Bay State's strengths come with serious economic drawbacks, analysts at the think tank say. 

"Massachusetts has, ironically, the most to lose if workers and firms start moving their very mobile intellectual capital to states that offer a friendlier business and tax climate," the Institute says. The "new economy is good news for states that are good at producing human capital but bad news for states that are not good at holding onto it." The Institute points out that businesses already face real difficulties in attracting and retaining workers in Massachusetts. 

Moreover, college costs here are among the highest in the nation and, partly as a result, "Massachusetts' access to human capital is increasingly at risk," the Institute says, pointing out that engineering degrees earned in the Bay State declined an alarming 20% between 1987 and 1998. 

Furthermore, in the face of growing competition from low-tax states, Massachusetts appears to be increasingly unable to keep its own engineering graduates in the state. Of those who completed technical degrees in 1992, only half were still in Massachusetts last year. 

Strong Growth If Taxes Are Rolled Back
On the positive side, the prestigious economic think tank foresees further expansion of the Bay State's economy if the November ballot initiative is implemented. However, any attempt to bring Massachusetts taxes down must overcome the fierce opposition of big government forces such as the cryptically named, pro-tax lobbying groups like the "Campaign for Massachusetts' Future," the "Tax Equity Alliance for Massachusetts," and radical left-wing activists controlling the teachers' unions (see sidebar).

Aside from the political opposition from left-wing political activists, there may be considerable uncertainty among voters as to what is at stake economically. As the Beacon Hill Institute concedes, "With so few unemployed workers and so many unfilled jobs, someone might ask, 'Why should we want to create even more jobs for Massachusetts?'" 

But the Institute's analysts see more than new job vacancies, which could drive salaries up beyond what the economy can sustain and would stimulate inflation. One point of a tax cut is to allow companies to hire new employees without raising prices on products and services, and thus to allow Massachusetts to compete in the new, far more mobile economy.

Promised in 1989
The placement of Question 4 on the November ballot was the result of a drive to hold state politicians to a promise they made in 1989 when they implemented a "temporary" tax increase allegedly to pay for government bonds and to be repealed as soon as the state's economy was strong again. 

With those bonds now paid off and the economy several years into a massive boom, politicians are trying to renege on their promise to the public. For many, the issue has become one of integrity and accountability to the public at least as much as economics. 

But campaign manager Jack McCarthy at the Campaign for Massachusetts Future, which represents public sector unions, rejects that argument. "The only promise that was made was by individual members of the Legislature. There was no sunset clause.  In fact, the governor tried to put one in the legislation, but it was rejected," he told Massachusetts News.

McCarthy said his organization wants the taxes involved, $1.15 billion annually, to go to two tried-and-true rationales for raising taxes: state education and health care. But citizens' groups point out that spending on the state education system has grown 34% since 1993 with no visible signs of improvement. 

McCarthy adds a common sense fiscal argument that high-tax lobbying groups have discovered only quite recently: we have to pay off debt the state government has built up through chronic overspending. But, asked how much of the $1.15 billion per year his organization and those behind it would want to put to paying off the debt, McCarthy told The Massachusetts News, "We wouldn't want to put a figure on it year by year."

"We're well on our way to another billion-dollar surplus," said Governor Paul Cellucci, who believes the tax rollback is vital to the state's future. "Why not keep the promise?  Why not strengthen the economy?" 

Grass roots citizens' groups say they see Question 4 as an important test of whether the state that revolted against the British tax code some two centuries ago still has the resolve necessary to put arrogant rulers in their place.

• Occupations requiring a bachelor's degree or more will soon account for 47% of all new jobs.
• Another 10% will require an associate's degree or a certificate.
• By 2006, more than three out of every four new jobs will be created in the service sector in Massachusetts.
• The growth rate of jobs will be the highest (89%) in computer software and related services.

• In 1999, job vacancy rates were 8.6% for skilled production workers, 8.4% for managers, 7.6% for technicians, 5.4% for scientists and engineers and 4.8% for other employees. 
• About 6.2% or 24,000 jobs at high-tech companies went unfilled.

• Boston residents have a total tax burden of $11,967, the second highest in the United States.
• The cost of an average single-family home in Massachusetts rose 20.7%, from $227,000 to $274,000, between May 1999 and May 2000 according to the Massachusetts Association of Realtors. 

"We want to see some of the money from those taxes go to making sure every third grader can read," campaign manager Jack McCarthy at the Campaign for Massachusetts Future, told  Massachusetts News. McCarthy's group is backed by powerful Massachusetts teachers' unions.

Asked how high taxes would accomplish that when diverse research from across the country and abroad has consistently shown no link between school budgets and learning achievement, McCarthy said the Massachusetts teachers' unions could answer that question better than he.

But a former leader in several teachers' unions told Massachusetts News a different story. "The teachers' unions are very prone to using scare tactics constantly. It's very difficult to go against the powers-that-be in the teachers' unions. I paid a price for my independence, believe me. Unfortunately, the rank and file just isn't aware how radical the political activists in the teachers' unions are and what their real agenda is." This was said by Ray Neary who described himself as having been a tough negotiator on the issue of teachers' salaries in his years of representing his colleagues in the Holliston public school system. 

Neary said, "They even lobby retired teachers on issues like this tax rollback, expecting us to read their newsletter propaganda and walk to the voting booth in lockstep and vote the way they tell us. And many teachers are not thinking critically about the issues or about the biased reporting in the Boston Globe. For example, they want teachers to worry that their pensions will be in danger, or that class size will get out of control, things like that." 

Early last month, David Tuerck, Professor of Economics at Suffolk University and Executive Director of the Beacon Hill Institute, published an economic study which devastated the union rhetoric, arguing that a tax cut will actually create more money for public education. Tuerck pointed out that since state politicians passed the Education Reform Act in 1993, increasing by 34% the amount of tax money going into public schools, a boon of $5.6 billion, there has been "no measurable improvement in school performance."