Supporters and opponents of two tax-related initiative petitions are butting heads over how to stabilize the state’s economy.
Proponents of a proposed ballot question to cut the personal income tax from 5% to 4% (H 5007) and cap state revenue collections (H 5006) say the measures are needed to maintain and sharpen the state’s competitive edge and bolster the softening labor market. Opponents argue that the questions would upend the state government investments and damage social services and municipal budgets across Massachusetts.
Ahead of a Monday hearing before a legislative committee on the two proposals, education, labor and community advocates from Raise Up Massachusetts marched around the Financial District and up to the State House to show their opposition. Raise Up led the successful 2022 ballot push to raise taxes on high earners.
The protestors called on several companies to resign from the Massachusetts High Tech Council and Massachusetts Competitive Partnership, groups that support the questions. Those companies included Fidelity Investments, Franklin Templeton, Empower, Bank of America, Deloitte and McKinsey and Company.
Cutting the income tax and capping revenues and thereby triggering tax rebates “is not the answer at all” to affordability issues plaguing Massachusetts, according to SEIU Local 509 President David Foley.
The council and partnership account for two-thirds of the business-backed Mass Opportunity Alliance, which is backing the two tax-related questions that could go before voters in November. Opponents said several members of the High Tech Council have already left, and pointed to Boston Globe reporting over the weekend that said some business higher-ups are now opposing or questioning the tax cut proposal.
“The strategy right now is to push the different affiliates of the Massachusetts High Tech Council and the Competitive Partnership away from these groups by making them recognize how reckless and unpopular this will be, and how damaging this will be to the state,” Foley told the News Service. “This is against a lot of their own interests.”
Jim Stergios, executive director of Pioneer Institute, said in prepared remarks shared with the News Service ahead of Monday’s hearing that the proposed tax cut could create 43,000 to 48,000 jobs in the state. That’s because 140,000 of 756,000 businesses are organized as pass-through organizations, so their revenues are taxed as personal income and usually reinvested in items that could boost jobs and expansion, he said.
The institute is also part of the Mass Opportunity Alliance.
Stergios said 26 states have cut taxes in the past decade, in part as a way to address cost spikes associated with COVID-19. North Carolina dropped its personal income tax rate from 5.8% to 4.25% and it’s heading to below 4%. Since 2020 North Carolina’s job base has grown 12% while Massachusetts has lost 20,000 jobs.
“Competitiveness creates jobs, it keeps people in Massachusetts, and it broadens the tax base,” Stergios said. “It strengthens the state fiscal position.”
Blasting “scaremongering” by tax cut opponents, Stergios rebutted criticisms that the plan would devastate the state budget, noting state spending has doubled the rate of growth in median income in the past 15 years.
He said “modest,” gradual tax cuts are manageable, as was the case when voters opted in 2000 to lower the personal income tax rate from 5.95% to 5%. The state didn’t reach that goal until 2020 because lawmakers delayed its full implementation. Stergios said from 1999 to 2008 personal income tax revenues grew by 56%, showing that tax revenues can accelerate even while some tax rates are reduced.
’Discretionary’ spending could be in danger
The impact of the tax cut ballot question would depend heavily on the broader economy, according to Doug Howgate, president of the Massachusetts Taxpayers Association.
Howgate planned to testify as expert Monday, and previewed some of his testimony at a different State House event Monday morning, speaking before the Massachusetts Association of School Committees’ lobby day.
Howgate brought up past examples of tax cuts. He compared the economic context surrounding this year’s ballot question to that of the early 2000s, when voters decided to cut their taxes ahead of a recession. He talked about the state’s “playbook” when dealing with sustained downturns in tax revenue, drawing from 2001-2004 and the Great Recession in 2008-2010.
“Voters voted to reduce the state income tax in 2000 from 6% to 5% and then right around the same time there’s a terrible recession, right? And so when you look at those two times when the state dealt with periods of declining revenues, the playbook was pretty similar” he said.
He continued, “They used about two-thirds of their reserves, from the Stabilization Fund... And when we look at where some of those spending reductions occurred, the first place folks have looked is on the discretionary side of the budget.”
“Discretionary” spending is generally considered to be items in the budget that don’t have a statutory requirement, he said, such as unrestricted general government aid to municipalities — which Howgate said was one of the spending items that was cut both between 2001-2004 and 2008-2010.
Howgate outlined some of the revenue impact if the question passed: when fully annualized over five years of implementation, it would have a roughly $5.4 billion negative impact on the budget.
Starting in fiscal year 2027 — the fiscal year that lawmakers are currently writing a budget for — it has an $800 million impact.
“So this isn’t just kind of in the far distant future,” he said.
Foley and Raise Up Spokesperson Andrew Farnitano pointed to a January MassBudget report that suggests the income tax cut proposal would give the highest 1% of households an average tax break of $31,600 and the bottom 80% an average tax break of $534.
The opponents said the proposal that would provide tax refunds if state revenues exceed a certain threshold “would lead to escalating cuts to public programs over time” and cost the state billions of dollars in revenue, “locking us into a downward spiral of tightening budgets with regular forced budget cuts.” The cuts would come as the state is already facing fiscal pressures under policies passed by the Trump administration.
“Corporations in the state, they want a stable workforce, and they want a stable state, and this would completely destabilize the workforce and destabilize the working infrastructure in Massachusetts,” Foley said. “Seven billion dollars out of a $61 billion budget is devastating. It would completely upend the Massachusetts State House and what they do, and create chaos, and chaos isn’t good for business.”
On the initiative petition changing the state’s revenue collection cap, Stergios said the formula lawmakers use has veered away from the law’s original intent.
“Our goal is simple: to have the law do what it was intended to do,” he said.
The committee has until a May 5 deadline to produce a report on the ballot question with a recommendation.
Katie Castellani, Ella Adams and Sam Drysdale are reporters for State House News Service and State Affairs Pro. Reach them at kcastellani@statehousenews.com, ella.adams@statehousenews.com and sdrysdale@statehousenews.com.