The Justices of the Supreme Judicial Court have ruled that the income tax proposal the Senate included in its budget is not unconstitutional, ending the legal controversy, but not the political controversy.
The Senate’s income tax plan would freeze the personal income tax rate at its current rate (5.15 percent) rather than allowing a formula to remain in place that year by year automatically lowers it to 5 percent. The plan would also increase the personal income tax exemption and the state earned income tax credit, thus providing a modestly progressive adjustment to state income tax collections.
Opponents of the plan have taken to saying that the proposed freeze amounts to “breaking faith” with the electorate that voted back in 2000 to reduce the rate to 5 percent. The Herald used the phrase in a recent editorial. And Governor Baker repeated the charge in an interview on Boston Public Radio last week.
“Breaking faith” — that sounds grave. It’s a phrase that might lead you to think, for example, that the Legislature has never before tampered with a ballot question that the voters had passed. Well, that’s an assumption easily disproved. We can start with a pair of ballot questions, one from 1998 and the other from 2000.
In 1998, voters approved with 58 percent of the vote a ballot question providing for public financing for political candidates who agreed to fund-raising limits. The Legislature, whose leadership abhorred the new law, refused to provide the revenue necessary for its operation. The law remained on the books for a while, but the lack of funding kept it from taking effect.
In 2000, two years after the voters approved the public campaign financing initiative, a question to reduce the state income tax from 5.85 percent to 5 percent over the course of three years was on the ballot. Republican Governor Paul Cellucci strongly supported this proposal, and his administration worked hard to convince skeptical voters that the state could afford this enormous tax cut without cutting state services. The Governor’s Secretary of Administration and Finance was dispatched to proclaim that, far from resulting in service cuts, the tax rate reduction would stimulate economic activity and produce more revenue. In what was likely one of the last straight-faced invocations of the Laffer curve, the Secretary promised: “when you cut taxes you have a stimulating effect” (Globe, 10/31/2000). As it happens, the Secretary was Stephen Crosby, the current chair of the state Gaming Commission, who today promised that casino gambling will bring as much as $400 million annually to the state.
Voters approved the tax rate cut that November, although by a lesser margin than the public campaign financing initiative had received two years earlier. But even before the year was out, state tax collections had begun to drop precipitously: the tech stock bubble was bursting. Only weeks after promising no cuts in services, Secretary Crosby was rethinking the entire situation. “That’s a colossal drop” in tax collections, he said. “That’s like falling off a cliff. That gives the message that we need to be ready” for spending reductions (Globe, 12/24/2000).
And the next few years would bring even more problems — the tragedy of 9/11 and the additional economic bad news that followed. The Legislature turned to paring programs and services and they also used the fiscal crisis as an opportunity to repeal the public campaign financing law. Said Governor Mitt Romney in okaying the repeal — “I do not want to put in our budget, particularly in a year with the financial challenges we have, money going into a Clean Elections fund.” In addition to cutting services, the Legislature also halted the voter-approved income tax reduction at its then-current level of 5.3 percent and put in place a formula tying future rate reductions to growth during the prior year, which is how we arrived at the 2015 tax rate of 5.15 percent.
In order to pave the way for the repeal of public campaign financing, the Legislature placed a non-binding question on the ballot in 2002 asking voters whether they approved of using taxpayer funds to pay for political campaigns. Money raised from large corporations funded an ad campaign that persuaded voters to reverse their prior vote in support of public campaign financing. No comparable effort was launched with respect to the income tax cut, so we don’t know whether voters would have favored significant reductions in funding for their schools, libraries, police and fire departments.
In the 15 years since the voters approved the income tax cut on the basis of a promise that it would increase revenue, that cut has been responsible for much of the reduction in funding for important state services: higher education is down 20 percent; early education down 23 percent, public health down 25 percent; local aid down 44 percent. (Hat tip for the stats to MassBudget.)
So what does it mean to “break faith” with the voters? To freeze the income tax rate and provide a small governmental counterweight to the growing problem of income inequality? Or to continue to peddle a promise made the better part of a generation ago that never could have been kept?
