The Governor’s proposal for closing the gap consists of the following items — roughly speaking 1/3 savings, 1/3 new revenues and 1/3 use of reserves.
|A. Spending Controls and Reductions|
|Elimination of Earmarks||$ (40)|
|State Employee Health Care Contributions||$ (51)|
|Constrained growth in agency & program spending||$ (84)|
|B. Medicaid Cost Controls and Savings – (Net of Revenue Loss)|
|Value and Cost Based Purchasing Principles||$ (105)|
|Right Care, Right Setting Efficiencies||$ (26)|
|Efficient Drug Utilization||$ (10)|
|Administrative Savings||$ (29)|
|Subtotal of Spending Controls and Reductions ($479M Gross Savings)||$ (344)|
|C. Enhanced Revenue Collection and Enforcement Efforts||$ (166)|
|D. Recommendations of the Study Commission on Corporate Taxes||$ (297)|
|E. Casino Revenues Used to Cover the Lottery Shortfall||$ (124)|
|F. Stabilization Use – In Accordance with Administrations Proposed Policy||$ (369)|
|G. Reforming the Stabilization Fund Deposit||$ (100)|
Would the proposed corporate tax increas harm the state’s economic competitiveness?
I think the state will remain competitive and I am prepared to support the measure.
There seems to be pretty broad consensus that the technical changes proposed would make the corporate income tax fairer. The next question is whether there should be a rate reduction to offset the increase resulting from “closing loopholes.”
While I do not object to some partially offsetting rate reduction, the state does face a structural gap in funding and many of the practices that the changes will prevent are, in fact, unfair. So, I hope that the legislature and the Governor are able to reach an agreement which closes the loopholes and provides new revenue.
The data points that suggest to me that the increases will not harm competitiveness or economic development include the following:
- Overall, Massachusetts business taxes as a percentage of state product (4.4%) are below the national average (5.1%). See national comparative data prepared by Ernst & Young (Table 5). See also the Federal Reserve study and Mass Budget and Policy Center.
- The corporate income tax is actually a fairly small portion of the state wide business tax burden — only 7% in 2006, according to the same study (Table 4) — and the $0.3 billion proposed increase would not materially increase the total tax burden, $13.1 billion, as a share of product (moving it from 4.4% to 4.5% based on the 2006 data).
- Taxes are only facet of a state’s competitiveness — labor and energy costs are larger — and a host of less tangible factors involving the quality of life and the operational climate are also important. See, for example, MassInsight and the Mass. Taxpayers Foundation (both actually arguing against tax increases because other factors are not favorable); or more positively, the Beacon Hill Institute, placing Massachusetts 2d in the nation for overall business competitiveness.
It seems clear that there is no strong general argument that changing the corporate tax code in ways that improve its fairness and raise revenue as proposed will do major harm to the state’s competitiveness. However, it should be acknowledged that general arguments about competitiveness can obscure more specific arguments about how tax changes would affect individual industries and firms.
Is it realistic to include casino licensing revenues in the FY2009 budget?
Regardless of one’s views on the casino proposal, it is not realistic to include licensing revenues in the FY2009 budget.
Even if legislative approval of the Governor’s proposal were immediately forthcoming, most people with experience in development recognize that projects on this scale can take years to work through — Cape Wind is one example, where despite administration support, permitting issues are taking years to resolve; other examples abound. It is hard to imagine casino developers who do not even yet have a site chosen, much less secured, being willing to front huge licensing fees.