AP NEWS
Related topics

New study on ‘income inequality’ looks at Mass.

September 15, 2014

BOSTON (AP) — Advocates for changing Massachusetts’ personal income tax may have new fuel for their campaign, as a new national study suggests a more progressive income tax that requires wealthier individuals to pay higher tax rates could help states deal with revenue problems.

Standard & Poor’s, in a study released Monday, found that the improving fortunes of the nation’s top earners corresponds with a decades-long slowdown in tax revenue growth among states. The rating agency says states adopting more progressive, or graduated, income tax rates could be more insulated from the problem, though it stops short of endorsing outright such policy changes.

“In the setting of rising income inequality, the move toward more progressive tax rates may help states generate faster tax revenue growth than would flatter tax regimes,” the report concludes.

State Rep. Jay Kaufman, a Lexington Democrat that chairs the legislature’s Revenue Committee, says he’s not surprised by the findings. He hopes the report helps bolster efforts to address Bay State taxes.

“It’s a conversation whose time has come,” he said. “The problems that we’ve got — both with wealth inequality and our regressive tax system — are worth addressing. Our failure to address them would continue the unfairness of the system and the challenges that we have with revenue.”

The Tax Fairness Commission, a legislative panel Kaufman co-chaired earlier this year, found that Massachusetts’ overall tax system, including state income and sales taxes and local property taxes, places a greater burden on middle and low-income taxpayers than those with higher income. Among that bipartisan commission’s recommendations: discarding Massachusetts’ flat income tax rate in favor of a graduated tax rate.

Of the 43 states that have a personal income tax, Massachusetts is one of just seven that still imposes a flat rate, which is currently 5.2 percent. Changing the tax’s structure, which would require voter approval of a constitutional amendment, has faced stiff opposition over the years.

Michael Widmer, a member of the Tax Fairness Commission who opposed the recommendation, says such an overhaul would only compound income inequality by discouraging business investment.

The president of the Massachusetts Taxpayers Foundation, a business-backed research group, he suggested more “modest” changes to the tax code, such as raising the value of certain tax exemptions for individuals and married couples. “That goes directly to the spending power of that person on the lower end that’s living in a high cost state and trying to make ends meet,” Widmer said.

But Noah Berger, president of the Massachusetts Budget and Policy Center, a left-leaning budget research group, argues that the state has enacted a series of tax changes over the last 15 years or so that have primarily benefited the wealthy, including reductions in the overall income tax rate and the tax rate on investment income.

The result, he says, is that the lowest income households — those on living less than $21,000 a year — are paying 9.5 percent of their income toward state and local taxes while those in the top 1 percent — those earning about $700,000 or more — are paying just 6 percent.

“Our state tax system has become more conducive to supporting inequality,” Berger said. “It taxes higher income people at lower rates than lower income people. That exacerbates the problem.”

S&P’s report cautioned that a greater dependence on top earners for income tax revenue makes it harder for state policymakers to predict what they’ll find in their coffers, since much of their income comes from investments in the sometimes volatile stock market. The agency report closes with this caveat: “tax revenue growth slows as income inequality rises, regardless of a states’ tax structure ... changes to state fiscal policy alone won’t likely fix what’s wrong.”

AP RADIO
Update hourly