DEC. 3, 2014 (STATE HOUSE) The State Department of Revenue today announced that sufficient economic growth under the terms of a 2002 law will result in a tax cut for millions of Bay State taxpayers beginning in 2015. The cut will come from a reduction in the income tax rate and long term capital gains tax from 5.2 percent to 5.15 percent effective January 1, 2015.
These tax cuts do not need the approval of the Legislature. They are part of a system devised by the Legislature when it approved a $1 billion-plus tax hike package in 2002. The package set the long term capital gains tax at 5.3 percent and froze the income tax rate at 5.3 percent instead of allowing it to drop to 5 percent in January 2003 — a reduction that was approved by voters in 2000.
The 2002 law also includes an automatic trigger that reduces both taxes by one-half of 1 percent each year that the state’s economic growth is at least 2.5 percent until each tax is reduced to 5 percent. The 2013 growth is 2.7 percent. The tax cuts are estimated to reduce state revenue by $70 million between January 1, 2015 and the end of fiscal year 2015 on June 30, 2015, and then $140 million for the next full fiscal year.
Senate Republican Minority Leader Bruce Tarr (R-Gloucester) hailed the cuts. He said, “With state spending reaching historic levels, it’s important that we also consider the people that are paying the bills. That’s why this modest tax relief is an important part of the state budget equation. It also moves us closer to the income tax rate that people approved at the ballot box several years ago and offers a chance for the reinvestment our economy needs to produce a robust recovery.”
Noah Berger, President of MassBudget, criticized the cuts. He said, “While our Commonwealth could be making investments to expand opportunity for all of our children and improve lives in our communities, this automatic tax cut will primarily benefit the wealthy and it will likely force cuts in education, transportation and other investments in our people and our economy.” He also blamed Gov. Deval Patrick’s recent cutting of funding for school transportation, job training, health care and other areas on these tax cuts.
This is the third year that an automatic tax cut was triggered. These two taxes were reduced from 5.3 to 5.25 in 2012 and then from 5.25 to the current 5.2 in 2014.