Massachusetts taxpayers in line for slight income tax cut

Posted Dec. 12, 2011, at 7:28 p.m.

BOSTON — Massachusetts taxpayers appear set to receive an automatic, though slight, cut in their state income taxes on Jan. 1, revenue officials said Monday. It would be the first such reduction in the tax rate since it was frozen nearly a decade ago.

The cut, from 5.3 percent to 5.25 percent, would be triggered by a sustained period of growth in tax revenue during the last year and a half. Massachusetts Revenue Commissioner Amy Pitter told lawmakers Monday that a final determination on the tax cut would be made Thursday after collections for the past three months are reviewed, but added that officials had already factored the anticipated reduction into revenue forecasts for the remainder of the current fiscal year and for the next one.

The savings for the typical taxpayer would be small — a family with $50,000 in taxable income would save about $25, for example — but many fiscal observers still viewed it as a positive development for the state economy.

“It’s a tiny amount, but it’s in the right direction,” said Michael Widmer, president of the Massachusetts Taxpayers Foundation, a nonpartisan budget watchdog group.

Pitter said the revenue impact of the tax cut is expected to be about $54 million in the current fiscal year and about $114 million in the next fiscal year that begins on July 1, 2012.

Massachusetts voters approved a ballot question in 2000 to gradually lower the state income tax from 5.95 percent to 5 percent. Two years later, the Legislature froze the rate at 5.3 percent, while also adding a mechanism that would allow the rate to fall if growth in annual revenues meets certain benchmarks.

The first test was passed in the fiscal year ending June 30, Pitter said, when inflation-adjusted revenue grew by more than 2.5 percent over the previous year. The second threshold, which also appeared to have been met, requires revenues to show some continued increase from August through November compared to the same period a year earlier.

“I think it’s a positive sign to the citizens that, ‘Hey, it was going to be triggered at some point,’ and there won’t be in my estimate an attempt to reverse that,” said Widmer.

Fiscal experts including Widmer were quick to point out that while the state’s modest economic recovery is causing tax revenue to grow at a higher clip, Massachusetts is still taking in less in total taxes than it did prior to the Great Recession. The state is forecast to collect $700 million less in taxes in fiscal 2012 than it did in fiscal 2008.

Monday’s hearing at the Statehouse was called as part of an effort to arrive at a consensus revenue estimate to guide lawmakers and Gov. Deval Patrick’s administration in constructing a state budget for the next fiscal year.

In her testimony, Pitter projected that fiscal 2013 revenues would increase $560 million to $683 million over fiscal 2012, a growth rate of 2.7 percent to 3.2 percent.

The taxpayers foundation forecast revenues to increase 3.9 percent, or $822 million, while another independent research group, the Beacon Hill Institute at Suffolk University, came in with a slightly more optimistic projection of 4.1 percent growth over the current fiscal year.

All of the estimates call for a slower rate of growth from a year ago.

Lawmakers and administration officials were also frequently reminded that the forecasts are only projections and that Massachusetts remains vulnerable to a host of economic factors that are slowing the recovery worldwide.

“Uncertainty over federal policies, the immense overhang of federal debt and the sovereign debt crisis in Europe will combine to dampen further growth of the U.S. economy and, with it, the economy of Massachusetts, said economist David Tuerck, who heads the Beacon Hill Institute.

Similar articles:

ADVERTISEMENT | Grow your business
ADVERTISEMENT | Grow your business