By Bob Katzen
A law that reduces the income tax rate and long-term capital gains tax rate from 5.10 percent to 5.05 percent will go into effect on January 1. 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 one percent each year that the state’s economic growth is at least 2.5 percent until each tax is reduced to 5 percent. The Massachusetts Department of Revenue last week finished crunching the numbers and confirmed that the required revenue metrics have been met to ensure the 2019 drop to 5.05 percent.
The cut is projected to reduce tax revenue by approximately $84 million in the current fiscal year 2019 and an estimated $175 million in fiscal year 2020.
“A strong economy and careful management of the commonwealth’s finances have created the conditions for Massachusetts taxpayers to get a much-deserved break,” said Gov. Charlie Baker. “We are pleased that next year we will see taxpayers be able to keep more of their hard-earned money.”
Opponents say the state cannot afford the loss of millions of dollars of revenue. They say that these tax rate should not be reduced when the Legislature has not yet restored all the local aid, education and other important program cuts made over the past few years.
“Five one-hundredths of one percent,” said Chip Ford, executive director of Citizens for Limited Taxation, the group that led the successful ballot question campaign to reduce the tax to 5 percent in 2000. “That equates to 5/100ths of a penny on every dollar we pay in state income tax. Pardon me for not popping the champagne cork yet, but it’s a better direction than the alternative. This amounts to a savings of about $33 for someone paying taxes on an income of $66,000. But again, any savings is better than more confiscation.”
The rate reduction was previously triggered for 2012 from 5.3 to 5.25 percent; 2014 from 5.25 to 5.20 percent; 2015 from 5.20 to 5.15 percent; and 2016 from 5.15 to 5.10 percent.