Bi-Partisan Panel Calls Massachusetts Tax System Regressive,
Five Recommendations Include a Graduated Income Tax
The Tax Fairness Commission, established by the Massachusetts Legislature in 2013 as part of the Act Relative to Transportation Finance, issued its final report concluding that the overall tax system in Massachusetts is regressive, and making five recommendations, the boldest one a recommendation for a graduated state income tax. The Commission was charged with analyzing a broad array of the Commonwealth’s tax laws and focused on the equity of current tax policies. The fifteen member bipartisan Commission met eight times from September 2013 until February 2014 and reviewed data and analysis prepared by the Department of Revenue, the Institute on Taxation and Economic Policy, the Joint Committee on Revenue, Massachusetts Budget and Policy Center, the Massachusetts Taxpayers Foundation, the Pioneer Institute, and others.
The Commission included economists, academics, business leaders, union representatives, the former Commissioner of the Department of Revenue, the former Inspector General for the Commonwealth, and state lawmakers. The Commission was chaired by Representative Jay Kaufman, (D-Lexington) and Senator Michael Rodrigues, (D-Westport) who also co-chair the Legislature’s Joint Committee on Revenue.
“There is no disputing the fact that our tax system is regressive. Low-income individuals and families pay a larger share of household income for state and local taxes than do high-income taxpayers. That’s simply not fair. A clear majority of Commission members agree that we need to do something about that. The Commission report should serve as an opening to an important, if difficult, public conversation,” said Representative Jay Kaufman in releasing the report.
“As a result of the bi-partisan Commission’s work, we recognize that the issue of tax fairness, which requires further attention, cuts across all socio-economic groups and income levels,” Senator Michael J. Rodrigues said. “I am proud of the Commission’s work, its members for rolling up their sleeves, and the healthy debate that ensued. The Commission’s report echoes the diversity of views that we heard over the course of our discussions and takes a step forward by recommending a framework to responsibly address the issue of tax fairness and promote long lasting economic security without undercutting our collective efforts to improve the Commonwealth’s economic competitiveness.”
The proposal to adopt a graduated income tax for the Commonwealth was supported by nine Commission members and opposed by four. By a similar 9-4 vote, the Commission adopted a package of measures targeted primarily at low- and moderate-income individuals and families. The package included increasing the Earned Income Tax Credit (EITC), expanding the property tax circuit breaker, and increasing the personal exemption for individuals, heads of household, and married couples. These measures, all of which entail a cut in state revenues, would be offset in the Commission’s recommendation by a modest increase in the state’s the flat income tax rate. The Commission specified that 80% of taxpayers should realize a tax cut or no significant tax increase under this proposal.
The Commission also recommended enacting legislation allowing the Department of Revenue to make administrative changes to enable the Commonwealth to collect taxes due from online and remote order sales. It also urged the Legislature and Governor to explore policies to advance the Commonwealth’s economic competitiveness consistent with tax fairness and sufficient funding for core public services (such as roads, schools, etc.) Finally, while the Commission did not address questions of the size of the Massachusetts budget, Commission members unanimously encouraged the Legislature and Governor to critically evaluate any proposal to increase or decrease revenue with an eye to enhancing, or at least not diminishing, tax fairness in the Commonwealth.
A PDF of the Commission’s final report can be found here.