The Governor first released a huge 10-year transportation plan, “The Way Forward”, and then asked for a huge increase in revenue – nearly $1.9 billion a year – to cover both transportation and educational improvements needed to maintain, and in some ways to simply regain, our economic competitiveness. Next step is a bond bill to provide the funds, to be paid back via the new revenue, to get started. (The education money will go towards universal pre-kindergarten, extended hours for struggling schools, and millions in reverse some previous and massive cut-backs to public higher education.) As several business advisory groups have repeatedly said, not investing in those areas will eventually cost even more – an estimated $11 billion in property damage, injury and loss of life as well as the loss of up to 15,600 jobs!
The Legislators’ political fear is clear. Most of them intend to run for re-election. They remember that Bill Weld ended a long streak of Democratic gubernatorial success by running against the “big spenders on Beacon Hill.” It will be electorally useful to say, “I helped hold the line.” However, a majority of the state’s residents support raising taxes and fees dedicated to transportation (61% and 62% for gas tax and income tax respectively). The sobering experience of unemployment and budget cuts has reduced public support for the Tea Party’s reactionary anti-tax, anti-government hysteria.
Even more important, from an Establishment perspective, while the business community used to be the primary denouncer of “Taxachusetts,” most of their organizations are now in favor of increased spending on transportation and education. Even the Massachusetts Taxpayer’s Association proposed transportation spending several hundred million more than the Legislature. One reason is that, as another group has pointed out, “taxes in Massachusetts are stubbornly average, [by both] income [and] gross state product measures…. taxes are actually lower in Massachusetts than they are in nominally low-tax states like Kansas, West Virginia, and Indiana….They have been for the past three decades, and they would remain so even under Patrick’s … $1.9 billion tax proposal.” A new national study ranks Massachusetts “the most competitive state for business, again!”
There is, of course, another perspective. The state is eventually going to have to upgrade its transportation system – or risk economic deterioration. As both the Boston Globe and Governor Patrick have said, if you’re going to get attacked for raising taxes anyway why not go high enough so that your constituents gain something of real benefit as a result? Isn’t it worse to have to go back and ask for more later on? If you’re in for a dime, you’re in for the dollar!
THE GOVERNOR’S PENNY
Of course, not every component of the Governor’s revenue plan is as strong as the overall logic. Because of its flat-rate income and sales taxes, the state’s current tax system is regressive; the lower a family’s income the larger the percentage they pay in taxes, only partially mitigated by exempting food and other necessities from the sales tax and exempting the first few dollars from the income tax. The proposal to drop the sales tax by 1.75 points and double the personal exemption are solid, progressive moves. (This would exempt income from state taxes: going up to $8,800 for an individual taxpayer $13,600 for a head of household, and $17,600 for a married couple filing jointly.) Raising the income tax by 1%, which would only have a significant impact on families earning over $100,000 a year, would have a similarly small but valuable progressive impact.
The Administration argues that these changes would financially compensate for eliminating a number of deductions, some of which are irrelevant (such as one for coal miners) but many of which have long positive histories, are extremely popular, and have vocal beneficiaries – including those for charitable giving, day-care expenses, adoption fees, renewable energy credits, taxes on scholarships and tuition aid, and others. Profits from home sales would be counted as income rather than capital gains. It will be difficult to argue against any of these on a stand-alone basis and it’s unlikely that the overall income and sales tax adjustments will mollify the people who benefit from these niche measures. However rational the off-setting arithmetic, these are political non-starters.
More feasibly, the Governor also proposes to raise the tax on tobacco while eliminating the loophole that allows “other tobacco products” to be subsidized by a tax exemption. Similarly, no longer classifying sugar-sweetened candy and beverages as food would eliminate their tax exemption subsidy and raise new revenue – at least partially for public health programs. Gas taxes and highway tolls, which haven’t been adjusted for decades, would be raised and indexed to inflation or otherwise set up for periodic increases. More problematically, MBTA fees would also go up on a regular basis.
Finally, the Governor would change the way certain business activities are taxed. In particular, Massachusetts would fall in line with about half the states and treat modifications to canned programs and custom software as a “product” rather than a “service” which has a lower tax rate. While business groups agree that transportation system improvements are desperately needed and applaud the proposed lowering of the sales tax, they oppose the income tax changes and decry the software (and other) classification changes as “opening a Pandora’s box” leading to similar treatment for custom web design to cloud computing, data storage, computer programming and software installations.
At the same time, not every component of the Transportation Plan is as defensible as the overall need. In particular, the proposed $850 million restoration of South Stationto its previous size is a good idea, but doing it in a way that doesn’t at least start solving the deeper problem of the missing connection between South and North Stations is simply stupid. Or, as former Governor Dukakis describes it, “unnecessary and irrelevant and a colossal waste of money.”
THE LEGISLATURE’S VERSION
The Legislature drops all the tax code changes. In terms of transportation, there are several good aspects to the Legislator’s 5-year strategy. It will allow MassDOT to stop having to borrow money to pay for operating expenses, a practice that adds a 50% surcharge to every bill. It covers the MBTA’s FY14 structural deficit and forward funds the Regional Transit Agencies instead of forcing them to repay borrowed funds at the end of each year, giving them a bit of extra funds for future capital investment. It gives an additional $100 million to municipalities for local road work, and raises the gas tax (the first time since 1991) a couple cents with an inflation index for future adjustments. A $1 increase in the cigarette tax and the inclusion of other tobacco products will both raise funds and immediately reduce youth tobacco usage.
It’s better than nothing, but simply not enough. It does not cover the cost of repairing our transportation system’s lack of repair, much less to expand it to meet current needs. There is little in it for expansion of our pedestrian, transit, or bicycling facilities. It may jeopardize the state’s ability to get up to a half-billion dollars in federal aid for the Green Line extension, putting even more of the burden on local taxpayers. It doesn’t make our tax structure more progressive or bring us in line with other states in how we treat businesses. Most troubling, it seems to rely too heavily on big future MBTA fare increases along with higher tolls and registry fees.
WHAT TO DO
While the Legislative leadership is going to get their bill passed, if it lacks a veto-proof 2/3 majority in both houses they will have to negotiate a final version with the Governor, which may lead to a more useful compromise – assuming both sides stop calling each other names!
No matter the vote, Transportation Advocates are pushing for a number of focused amendments that will dedicate whatever increased tax money is available to transportation, lock in a minimum funding level for RTAs, create incentives for MassDOT and the MBTA to boost transit ridership, place any revenue from RMV and vehicle inspection fees in the Transportation Fund as well as the money currently going into the Underground Storage Tank Fund.
Public health activists join transportation advocates in also wanting to incorporate an incentive fund to encourage municipalities to adopt “Complete Streets” policies to facilitate “active transportation.” (They are also pushing to have at least a portion of the tobacco revenues dedicated to health, with the “other tobacco products” money going to the new Prevention Trust.)
Call your state Senator and Representative – today! Let them know what you want! A lot of this will be decided THIS WEEK!
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