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With Question 3,
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from NewsLink, Vol. 3, No. 1, Fall 1998
On November 3, Massachusetts voters gave a resounding thumbs up to Question 3 on the state's election ballot. Passage of the referendum question on the Massachusetts ballot by a margin of four-to-one sets the stage for an economic bonus for the state – as much as $500 million in business spending on factories, warehouses, computers and other equipment.
The state is now required to tax dividend and interest income (“unearned income”) at the same rate that it taxes earned income. Until this year, Massachusetts taxed dividend and interest income at 12%, the highest rate in the nation, while taxing earned income at 5.95%. The state cut the tax on dividends and interest income to 5.95% earlier this year. Question 3 ensures that earned and unearned income will be taxed at the same rate in the future.
It is common knowledge that people with investment income benefit from cutting the tax on dividends and interest. What is less known is that the state economy benefits as well.
For the last four years, Massachusetts has run surpluses sometimes exceeding a billion dollars. This bodes well for future tax cuts. One proposal would cut the tax on earned income to 5%. Cutting the tax on dividends and interest income to 5% would add $500 million to the Massachusetts capital stock.
By reducing the tax on earned income, the state would suffer a slight revenue loss. State and local government would suffer a combined loss of $52 million (about .3% of the state budget), while taxpayers would enjoy a gain of $52 million in after-tax income.
The $500 million bonus will take place as Massachusetts taxpayers find that they can keep more of the income they receive from their investments in Massachusetts corporations. Lower taxes on dividends and interest mean a higher after-tax reward for investing in Massachusetts corporations.
the guarantee, of further robust
NewsLink is the quarterly newsletter of the Beacon Hill Institute for Public Policy Research at Suffolk University. © 1996-1998. All rights reserved. Posted on 11/20/98.
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