By Michael P. Norton
State House News Service
While there's growing talk of a possible national recession, Massachusetts workers are about to receive a $175-million income tax break and there's now a possibility that the 5 percent tax rate that voters approved in 2000 will actually happen in 2020.
As the weekend got underway Friday, the Baker administration quietly announced that all of the necessary economic triggers had been hit and the income tax will fall from 5.1 percent to 5.05 percent on Jan. 1.
In August, Revenue Commissioner Christopher Harding certified that fiscal 2018 revenues had easily outpaced the state's 2.5-percent trigger, and tax revenue growth in four consecutive three-month periods, the most recent one ending this month, was positive enough to force the rate reduction.
The tax relief means $84 million less for the state budget over the last half of fiscal 2019. Its impact over a full fiscal year is $175 million.
While the slight rate cut may not make a huge difference in take-home pay for workers, its $175 million annualized value exceeds the total $160 million increase in aid to local public schools this fiscal year and nearly equals the $200 million in this year's budget to combat the opioid and heroin epidemic.
In a press release issued Friday, Gov. Charlie Baker and Lt. Gov. Karyn Polito applauded the tax rate reduction.
“A strong economy and careful management of the Commonwealth’s finances have created the conditions for Massachusetts taxpayers to get a much-deserved break,” Baker said. “We are pleased that next year we will see taxpayers be able to keep more of their hard-earned money.”
“Next year the income tax rate will be the lowest it has been in decades, which will provide welcome relief to workers across the Commonwealth,” Polito said. “Massachusetts taxpayers deserve the boost that this rate reduction will deliver.”
Michael Heffernan, Baker's budget chief, called the reduction "a nice break for taxpayers."
In his first bid for governor in 2010, Baker made reducing the income, sales, and corporate tax rates to 5 percent a central theme of his campaign. After losing that year to Gov. Deval Patrick, Baker placed less emphasis on tax relief in his two successful campaigns for governor in 2014 and this year.
5 percent possible in 2020
Income-tax rate reductions did not occur in 2013 or 2017, but the former 5.3 percent rate fell in 2012, 2014, 2015, and 2016.
In 2002, with Rep. John Rogers serving as House Ways and Means chairman under former Speaker Thomas Finneran, the Legislature pushed through a $1.1 billion tax bill over former Gov. Jane Swift's veto. That law froze at 5.3 percent the income tax rate, which voters in 2000 had ordered to be cut to 5 percent.
The 2002 tax law also cut the personal exemption from $4,400 to $3,300 for individuals and $8,800 to $6,600 for couples. Those exemptions were restored to their previous levels in the ensuing years, and triggers have slowly ticked the income tax rate back closer to 5 percent, but not quite there yet.
If triggers force the income tax back down to 5 percent on Jan. 1, 2020, another area of taxation addressed in 2002 will be back on the table.
State law currently requires that in the tax year after the income tax reaches 5 percent, the charitable giving deduction, which was in effect for tax year 2000 but subsequently suspended, will be restored.