Last
year, four influential groups conducted a successful campaign
to cancel a scheduled reduction in the personal income tax
from 5.3% to 5.0%. The leaders of this campaign had to convince
the state legislature to undo a ballot measure endorsed
by a series of governors and approved by an overwhelming
majority of voters.
In
terms of its effects on the state economy, cancellation
of the tax cut could not have come at a worse time. With
the state economy in a stall, the tax cut would have helped
the bottom line of every independent business in the state.
According to calculations made by the Beacon Hill Institute,
the decision to cancel the tax cut has caused the loss of
10,328 new jobs, about one-third of all jobs lost over the
last year.
Who
conducted this campaign? Was it the public employee unions?
The human services community? Not at all. It was the Associated
Industries of Massachusetts, the Massachusetts Taxpayers
Foundation, the Greater Boston Chamber of Commerce and the
Massachusetts Business Roundtable – all advocates
for the state’s most powerful corporations and all
once reliable advocates of low taxes.
This
tax-hike epiphany by big business gave the state legislature
the cover it needed to repeal a politically popular tax
cut. And the effects did not end with the personal income
tax. An emboldened legislature went on to cancel a charitable
tax deduction, approved by an even larger majority of voters
(and ironically also once championed by business), and a
capital-gains tax cut, extracted by Governor Weld on the
promise of a controversial legislative pay raise. In the
end, the legislature raised taxes by $1.2 billion.
AIM,
the Taxpayers Foundation and the others tried to justify
their complicity in this tax hike by pointing to a state
revenue crisis that threatened "core" state services.
They promised that this tax hike would be "balanced"
by spending cuts. Unsurprisingly, we got the tax hike, but
spending continued to rise.
Now
these same business groups are begging the legislature not
to rescind their own cherished tax breaks. Suddenly now,
low taxes -- as embodied in the single-sales-factor formula,
the investment tax credit and the research and development
tax credit -- are essential to state competitiveness.
The
single-sales-factor formula was adopted in 1995 on the promise
that it would keep manufacturing jobs from leaving the state.
Since then manufacturing jobs have decreased by 17%.
AIM
and the Taxpayers Foundation are still arguing nevertheless
that these tax breaks are needed to preserve jobs. Their
spokesmen are warning the legislature not to revive the
state’s reputation as “Taxachusetts.”
Repealing
all three tax breaks would cost state corporations about
$300 million in new taxes. There is no word from business
spokesmen about how last year’s tax increase, quadruple
this size and enacted with their encouragement, has affected
jobs or the state’s reputation.
Repealing
the corporate tax breaks would, to be sure, cause economic
harm. BHI has determined that it would cause business investment
to shrink by $592 million or 1.23%. But the warnings about
job losses are, to say the least, dubious. Indeed, our analysis
shows that repeal would actually lead to the creation of
a thousand or so new jobs.
AIM
has commissioned studies to support its argument that there
would be job losses. But given that the effect on jobs,
plus or minus, is, by every account, small, we can now agree
that none of the tax breaks is important for preserving
jobs. We can also agree that canceling tax breaks beneficial
to only a handful of special pleaders would inflict less
economic damage than did the much larger tax hike enacted
last year, which cut a wide swath through the state economy.
It
appears that the tax breaks in question will temporarily
survive the feverish efforts by the public employee unions
to raise taxes. Ironically, the reason lies less with the
efforts by AIM to prevent the repeal of corporate tax breaks
than with a 2002 ballot measure that AIM and its allies
opposed. The ballot measure would have abolished the state
income tax and came close to being approved at the polls.
It is this strong expression of anti-tax sentiment by the
voters – and not AIM’s protestations –
that is deterring the legislature from enacting any further
tax hikes this year.
AIM
and its allied groups are not out of the woods on this issue.
The public employees unions and their favorites in the legislature
are threatening to put higher business taxes back on the
table in the fall. And the business community will get no
credit from these quarters for siding with them over last
year’s tax hike. Such are the wages of those who would
ply a self-serving double standard.
Salvation,
however, awaits those who would repent. The business community
could still reclaim the moral and economic high ground by
launching a new campaign, this one aimed at bringing about
lower tax rates, corporate and personal, that would benefit
all businesses, large and small.
The
state already has plenty of advocates for higher taxes and
bigger budgets. It's time once again for business to take
care of business -- and the state economy.
_______________________________________
David
G. Tuerck, PhD, is chairman and professor of Economics at
Suffolk University where he also serves as Executive Director
of the Beacon Hill Institute for Public Policy Research.
dtuerck@beaconhill.org