Bloomberg News

Massachusetts Governor Seeks Wage Tax Boost, Sale Tax Cut

January 16, 2013

Governor Deval Patrick asked Massachusetts lawmakers to raise the income-tax rate for the first time in two decades and cut the sales levy, saying the changes would make the system fairer while helping to pay for $2 billion in education and transportation initiatives.

The current flat rate of 5.25 percent on wages should climb to 6.25 percent, Patrick, 56, said yesterday in a televised speech to lawmakers in Boston. At the same time, the Democrat asked for a cut in the 6.25 percent sales tax to 4.5 percent.

“From good jobs to good schools to good communities, creating opportunity is at the center of our best work,” Patrick said. He said the changes would be used to help pay for his proposals to expand education and improve transportation systems needed for economic development.

Patrick is following a path taken by Democratic governors Jerry Brown in California and Martin O’Malley in Maryland, who sought and won tax increases last year. In November, voters in the Golden State backed a temporary boost in the top income levy to 13.3 percent, while in Annapolis, lawmakers passed O’Malley’s 5.75 percent top rate in May, up from 5.5 percent.

“If we want to accelerate growth and expand opportunity throughout the commonwealth (STOMA1:US), we have to invest more,” Patrick said. “Opportunity requires growth. And growth requires investment.”

New Revenue

“Meeting those needs demands new revenue,” Patrick said.

Under his proposal, the governor would also double the personal exemption for taxpayers and eliminate some itemized deductions, to make the system fairer, according to his prepared text. He didn’t say which deductions would be eliminated.

The last increase in the state income-tax rate occurred in 1991, when it rose to 6.25 percent from 5.95 percent, according to the Massachusetts Taxpayers Foundation in Boston. It began to fall in 2000, with the most recent reduction coming last year, to 5.25 percent from 5.3 percent in 2011.

Patrick would channel all sales-tax revenue into a new public works fund, to be used for transit systems, roads and school buildings. The governor engineered a 25 percent jump in the state sales tax, to 6.25 cents on the dollar from 5 cents, in 2009, his first year in office.

Rebounding Economy

Following a slight decline in 2009, when the nation was mired in the longest recession since World War II, the state’s economy expanded 8.6 percent by 2011, data compiled by Bloomberg show. After peaking at 8.7 percent following the slump, the Massachusetts jobless rate stands at 6.6 percent, more than 2 percentage points lower than the national average.

In a Jan. 14 speech on transportation issues, Patrick said the $1 billion revenue increase he seeks would provide additional funding for current operations and pay for mass- transit expansion and road construction. He said the work would support economic growth and job creation.

Patrick called for boosting education spending by $550 million in fiscal 2014, which begins in July, and by almost $1 billion annually over the next four years, in a Jan. 15 speech at a Boston school. He said the funds would be used to expand programs from preschool to college, to help keep the state competitive as a place for businesses to locate and grow.

“The economy is not like the weather; it is not some natural force that is beyond our control, something where we have to wait for others to predict or explain,” Patrick told lawmakers yesterday. “What we choose to do, and not to do, shapes our future.”

To contact the reporter on this story: Ted Bunker in Boston at tbunker1@bloomberg.net.

To contact the editor responsible for the story: Stephen Merelman at smerelman@bloomberg.net.


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