By Bob Katzen

The Baker administration announced that sufficient economic growth in 2019 under the terms of a 2002 law will result in tax cuts for millions of Bay State taxpayers in 2020. The cuts would come from a reduction in the Part B individual income tax rate and long-term capital gains tax rate from the current 5.05 percent to 5 percent effective January 1, 2020. The administration said the cuts are estimated to result in an $88 million tax reduction in partial fiscal year 2020 and $185 million in full fiscal year 2021. Estimates are that the average taxpayer would save from $20 to $50 per year. High income earners would save hundreds of dollars.

Part B income includes wages, salary and many other forms of income, including self-employment income; business, professional and farm income; S corporation distributions; and rental income from personal property. The rate associated with Part B income is also applied to several other income categories, including interest and dividends and most long-term capital gains.

Under the same 2002 law, the state charitable deduction was indefinitely suspended and now will be reinstated on January 1, 2021. The estimated loss of revenue from the charitable deduction is $64 million in partial fiscal year 2021 and approximately $300 million in full fiscal year 2022.

All these reductions were originally supposed to take place in 2003 under the terms of voter-approved ballot questions in 2000. Citizens for Limited Taxation spearheaded the ballot question rolling back the state’s then-5.85 percent income tax rate to 5 percent over the course of three years. It was approved 59 percent to 41 percent. Voters also approved a separate question creating the charitable deduction by a 72 percent to 28 percent margin. But it has taken 20 years for the rates to go down to 5 percent and for the charitable deduction to be revived.

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 took away the charitable deduction completely, set the long-term capital gains tax at 5.3 percent and froze the income tax rate at 5.3 percent instead of allowing them to drop to 5 percent in January 2003 — a reduction that was approved by voters on the 2000 state ballot. The 2002 law also includes an automatic trigger that reduces both taxes by one-half of 1 percent each year, until they reach 5 percent, if certain goals are met, including if revenue from the prior fiscal year grew at least 2.5 percent faster than the rate of inflation. This upcoming tax reduction to 5 percent represents the conclusion of the process laid out in the 2002 state law.

“Starting in January, the income tax rate will be the lowest it has been in decades, allowing Massachusetts taxpayers to be able to keep more of their hard-earned money,” said Gov. Charlie Baker. “Our administration is working to keep the commonwealth’s economy strong while maintaining fiscal discipline and now we are finally making happen what voters called for almost 20 years ago.”

“Consistent increases in state revenue are triggering this final income tax rate reduction,” said Administration and Finance Secretary Michael Heffernan. “This is excellent news for Massachusetts taxpayers, and it was incorporated into our assumptions for fiscal year 2021 so there is no change in our revenue outlook.”

“It’s a shame that Barbara Anderson isn’t around to celebrate, after all the labor she too put into keeping the promise and rolling back the ‘temporary’ income tax, including two statewide petition drives and the 2000 ballot campaign,” said  Chip Ford, executive director of CLT which put the rollback question on the 2000 ballot. “She died three years ago, and Chip Faulkner, CLT’s associate director who coordinated the petition drives, passed away this year. But considering that almost two generations have passed since that false ‘promise’ was made and remained broken, there are many former-taxpaying souls who are no longer with us to celebrate as well.  There are a multitude of taxpayers today – almost two generations of them – for whom this will be the first time they’ll ever have paid a 5 percent income tax in their lifetime.”

“It’s a day that should be celebrated that even in Massachusetts, occasionally the taxpayer can keep more of their hard-earned income before state leaders can any deeper into our checking accounts,” said Paul Diego Craney, spokesman for the Massachusetts Fiscal Alliance.  “It’s long overdue but it goes to show you how hard it is to advocate for the taxpayer at the Statehouse. I don’t our state leaders even know how to spell ‘tax cut.’”

Not everyone is celebrating. “The income tax is one of the few revenue sources that asks high-income people to pay in-line with their larger bank rolls,”  said Phineas Baxandall, Senior Analyst at the Massachusetts Budget and Policy Center. “Repeated cuts to the income tax rate are a big reason that Massachusetts’ tax system is upside-down. Those with higher incomes end up paying a smaller share of their income, on average, than moderate- and low-income taxpayers pay.”

“Our past failure to invest in transportation and public education forces many working families in Massachusetts to struggle with lengthy commutes, high transportation costs and a lack of economic opportunity,” said Andrew Farnitano,  spokesman for Raise Up Massachusetts, the group that is sponsoring the possible 2022 ballot question that would impose an additional 4 percent income tax on taxpayers’ earnings of more than $1 million. “This income tax rate cut will give low-and middle-income people just $10 or $20 each year, but that’s a drop in the bucket compared to the cost of recent MBTA fare increases, or to the high tuition bills at our public colleges. The vast majority of this tax cut will go to those at the top, with the highest-income 1 percent receiving almost 25 percent of the total tax cut.”

“Massachusetts needs major new investments in transportation and public education in every part of the state, and that will require significant new revenue,” continued Farnitano. “It’s time for millionaires and large corporations, who have been the only big winners in our economy, to finally pay their fair share to make those investments. That’s why Raise Up Massachusetts is fighting for the Fair Share Amendment tax on million-dollar incomes, and for closing corporate tax loopholes.”