|
The
core issue, is not whether the state can afford the tax cut
or how effectively it would stimulate the economy. The core
issue is the value that the state - and the candidates - place
on democracy.
|
|
David
G. Tuerck
What
has most distinguished this year's primary season is the candidates'
fixation on what should, in one sense, be the least important
issue of the campaign: whether to cut the personal income
tax rate from 5.3% to 5.0%. In 2000, the voters overwhelmingly
supported a ballot measure to reduce the rate, then at 5.85%,
in stages to 5.0%
In
2002, the legislature overturned this vote and froze the rate
at 5.3% in response to a falloff in revenues owing to the
economic slowdown then under way. The legislature also lowered
the personal exemption, ditched a voter-approved charitable
tax deduction and raised capital gains taxes. Now, with revenues
flooding state coffers, candidates debate whether to let the
income tax rate fall to 5.0% at once, or in stages, or whether
to just keep the rate frozen where it is now. The revenue
loss from the tax cut is estimated to be $675 million annually
or about 2.6% of the budget.
Today
57% of expected Democratic primary voters support a reduction
of the rate to 5.0%. There are, to be sure, influential voices
claiming that the state cannot "afford" to sacrifice
even this much revenue. But consider the following: In June
2005, the state approved the fiscal year 2006 budget on the
expectation that tax revenues would be $17.3 billion for that
fiscal year. In fact, FY 2006 revenues totaled $18.6 billion,
representing a surplus of $1.3 billion. The tax cut at issue
could have gone into effect on July 1, 2005 and the state
would still have brought in about $529 million more revenue
than it would have needed to meet its spending plans for the
coming fiscal year.
The
record for fiscal years 2003-05 is similar. The state has
shown for four years running that it can afford this tax cut.
Revenues have been growing at an average annual rate of 6.2%
since FY 2002. If affordability is the issue, then we must
ask, "If not now, when?"
Opponents of the tax cut like to point out how little it would
add to disposable income (about $143 per household per year).
But the same logic cuts the other way. Using the state surplus
and limiting the annual growth of budget busters, the legislature
could easily make up 2.6% of the budget without inflicting
real pain. Cutting the tax would confer at least modest economic
gains. According to our analysis, it would create almost 8,000
new jobs and add some $450 million annually to disposable
incomes.
The core issue, however, is not whether the state can afford
the tax cut or how effectively it would stimulate the economy.
The core issue is the value that the state - and the candidates
- place on democracy.
The
usual argument is that the voters would never have approved
the tax cut if they had anticipated the 2002 downturn or if
they had understood the spending needs imposed by health care
and education reform, unfunded pension liabilities, Big Dig
disasters and the like. But this argument overlooks the possibility
that the voters are intelligent enough to know that economic
downturns will occur and that professed spending needs will
always get larger and larger. Perhaps, in 2000, the voters
meant to tell the legislature that it must learn to live with
5.0% through thick and thin and that if there is a downturn
and if individual citizens must tighten their belts, then
so must state government. Perhaps that's what they're telling
the candidates now.
The
voters, too, may see through the argument that the state continues
to labor with a "structural" deficit that makes
a tax cut fiscally irresponsible. This deficit is supposed
to be the difference between what the state has to spend in
order to meet current obligations and what it can expect to
take in as revenue.
Perhaps,
in enacting the 2000 tax cuts, the voters were telling the
legislature that what it "has to spend" can be no
more than what it can raise in revenue when the tax rate is
set at 5.0%. Perhaps they were saying that if current obligations
would require the legislature to spend more than that, then
it is time to reduce current obligations.
Self-styled
experts like to disdain the naive voter who would jeopardize
"vital" programs just to save a few bucks in tax
revenue. Perhaps the voters likewise disdain politicians who
behave like petulant teenagers unable to live on an allowance.
The difference is that it is the voters, not the experts or
the politicians, who have the votes.
______________________________________
David G. Tuerck is Executive Director, the Beacon Hill Institute,
and Chairman and Professor of Economics at Suffolk University.
This
article appeared in the September 13, 2006 edition of the
Boston Herald.
Updated on
Tuesday, January 30, 2007 12:44 PM
|
