Linsky Warns of Effects of Ballot Question, Iraq War on Economy

State House News Service

Boston, Mass. - On the eve of an expected tax vote, House Republicans signaled they’ll make a last-minute plea against about $500 million in tax hikes on smokers and larger corporations while Democrats appear ready to vote for higher taxes to prevent broad-based tax increases or cuts in human services.

Alternatives to the tax hikes on the table include cuts in state human service programs or increases in broad-based taxes like the income or sales taxes.

House aides say the tax bill will include tax enforcement law changes sought by Gov. Deval Patrick that may bring in $166 million in new tax revenues. In fiscal 2009, which covers only half the tax year, the House bill would reduce corporate excise tax collections by $85 million while boosting corporate revenues, through the “combined reporting” and “check-the-box” reforms, by $289 million. The $1-a-pack cigarette tax hike will produce $174 million in new fiscal 2009 revenues, according to estimates provided by the House Monday.

The Legislature, over Acting Gov. Jane Swift’s veto, raised taxes by $1.2 billion in 2002.

House Speaker Salvatore DiMasi’s poll of House members revealed skittishness about the speaker’s effort to soften the so-called corporate loopholes with a 2.5 percent cut to the overall business excise tax — from 9.5 to 7 percent — a reduction that would render the overall package revenue-neutral by fiscal 2011.

Many members felt that cut would be too deep, said sources familiar with the poll results. Patrick had proposed a reduction just under half DiMasi’s, netting $297 million next fiscal year to the speaker’s $204 million.

The polls also showed support for the “combined reporting” and “check-the-box” corporate tax policy changes, and concern with provisions in a transportation bond bill marked for House debate this week that would cut back on paid police details. Both Patrick and the state Senate have backed off earlier signals they would pursue more dramatic reform to the police detail system.

Patrick declined to say Monday whether he would support the more dramatic rate cut.

“I proposed the rate cut that I think is wise and over what period of time, but there’s work that we look forward to doing with the House and the Senate to reach a unified conclusion,” the governor told reporters,” he said.

Beacon Hill budget officials agreed Friday with Patrick’s instructions to his top aides to prepare for midyear spending cuts. Soaring health care, energy and education costs are among the spending triggers outpacing state tax collections.

The House recently rejected Patrick’s plan to raise substantial new revenues by legalizing casinos. State Sen. Scott Brown, R-Wrentham, continued Monday to talk up the idea of authorizing racetracks in Massachusetts to deploy slot machines, an idea that, like casinos, faces an uphill climb in the House.

The vote on taxes is on pace to occur before lawmakers know who will challenge them for their seats this fall.

Senate President Therese Murray told cigarette tax supporters Monday that the Senate is “firmly supportive of the cigarette tax to help pay for health care.” Patrick said he saw “public health wisdom” in a cigarette tax, adding, “I think in some form I expect to support it, but I want to see what form it takes when it comes to my desk.”

The House estimate of $174 million from the cigarette tax increase is pegged to an expected policy change date of July 1, 2008 — while the other reforms would become effective Jan. 1, 2009.

Leslie Kirwan, Patrick’s budget chief, said that if municipal health care costs continue to skyrocket at a clip of 12 to 15 percent per year, she would “say no” to insisting that municipalities fully fund the increases for their employees. She said that even if the state found new revenue for local aid, other budget priorities deserve funding as well.

“Health care is driving all of our budgets,” Kirwan said. “We have to figure out a way to bend that curve or the state budgets and the local budgets are going to be nothing more than paying for health care. And that’s not right. There are other things. There’s public safety, and education, and transportation, the arts, libraries and other things we care about.”

Kirwan said that rather than expecting municipalities to fund inflating health care costs, city and town leaders should “exert more discipline” on benefit structures and work with the health care community to bring costs down.

Asked by a reporter Monday if he was still confident in the administration’s goal of creating 100,000 new jobs, Patrick replied, “That’s our objective,” and said he would discuss strategies during a major economic address Wednesday.

House Republicans say the planned $500 million in tax increases are not necessary at a time when the state is raking in record revenues. They claim the tax hikes will imperil economic development, send smokers and their spending dollars into neighboring states, and that the bill gives the revenue commissioner too much power.

Rep. Viriato deMacedo, R-Plymouth, said the House’s move to raise revenues from businesses conflicts with their stated reasoning that last year was a bad time to raise taxes because of economic conditions. “Things are actually even worse in the business climate,” he said.

He said DiMasi’s and Patrick’s move to revoke a sales tax exemption on aircraft parts would hit small aviation facilities hard. “It’s very easy for the planes to land in Manchester [New Hampshire] or in Rhode Island,” deMacedo said.

At a press conference Tuesday morning, before House debate on the bill, Republicans plan to make the case that revenues this fiscal year are running $772 million above original budget benchmarks and the state has appropriated $167 million in supplemental spending. They’ll ask for an accounting of the remaining $605 million.

Taxes were on the minds of many local officials who attended a Suburban Coalition event Monday morning when officials heard from DiMasi, Kirwan, Mass. Taxpayers Foundation President Michael Widmer and others, like Rep. David Linsky, who warned that the war in Iraq and a bid to ban the income tax are “elephants in the room.” He said the war in Iraq is sucking billions of dollars out of the state and national economies. Linsky said the income tax abolition ballot question, if passed, would remove $11 billion from the state budget, which is on track to top $28 billion. There is nearly $6 billion in mandated Medicaid expenses in the state budget and “moral responsibilities” related to care for the elderly and mentally ill and retarded. If the question passes, “we would have no choice but to effectively eliminate all local aid other than that as required to bring certain school districts up to foundation” budgets. “People need to understand just how serious that question is,” he said.

The income tax abolition question garnered 40 percent of the vote the last time it was on the ballot in 2002. Now, with energy and food costs soaring and talk of a recession, “people are rightfully scared” and “we have to very seriously consider the possibility that that income tax question might actually pass.”

The question’s proponents, namely former Libertarian gubernatorial candidate Carla Howell, say the question will deliver taxpayers an average break of $3,600 a year while sharply limiting the size of state government.

Brown said anti-tax efforts are rising up because taxpayers don’t seen reforms gaining steam.

“They’re kind of fed up where the money is being spent up here,” he said. “And there’s no real savings so in order for there to be … taxes raised first — people say ‘Would you support taxes?’ At some point I would. But however the problem is until we do some real reforms that would save some real dollars, how do you justify that?.”

“A lot of what we do in the Legislature is fluff reform,” said Brown, adding that he believed there were “no hardcore savings” in a transportation reform bill that cleared the Senate last week.

Widmer said the foundation has not taken a position on slot machines at the racetracks but acknowledged Monday that it’s a “much more realistic and immediate revenue source” than casinos.

A steep economic downturn, Widmer said, could worsen the collective mood of voters this fall. “They tend to be even more surly than usual” during recessions, he said.

Angelo Firenze, chairman of the Board of Selectmen in Belmont, said he hears local residents say frequently that they don’t have confidence in government to spend tax dollars wisely. Referencing “generous” benefit and retirement packages for public officials, Firenze said reforms plans “get talked about and then they get watered down” and described the cigarette tax and expanded Lottery games as “the most regressive taxes we can be putting forth.”

After Firenze said state officials who believe cities and towns are looking to Beacon Hill for bailouts are “out of touch with what’s going on in the communities,” Widmer said he found the lack of sympathy for the plight of municipal government “utterly remarkable” on Beacon Hill.

“It is not by and large a partnership but a sense of resentment on each side,” said Widmer.

Rep. Theodore Speliotis, D-Danvers, who joined the Legislature in 1979, called the relationship between the Legislature and cities and towns an “arrangement that is growing each and every term” and recalled a time when human service accounts were dealt with first in the budget and cities and towns received “whatever was leftover.”

“Today the first and foremost discussion is local aid,” Speliotis said.

DiMasi said the House plans to keep its commitment to boost local aid even though Lottery revenues are missing budget benchmarks and “some people” are now suggesting tax revenues will grow next fiscal year by 2.5 to 3 percent rather than 3.5 to 4 percent. “We have a plan to raise revenue and make cuts to make sure that that $124 million gap is filled so that you’re going to get the local aid you need for services.”

DiMasi, describing lawmakers as “truly partners” during remarks to local leaders, listed early education, full-day kindergarten and extended learning programs as among those that need to be curtailed “because we want to keep our commitment to you.”

Mentioning public opposition to paid police details at a time when the private sector is pulling back on retiree and medical benefits, Widmer said there is a “whole series” of state policies that are not sustainable and predicted that as the fiscal squeeze continues on Beacon Hill, “more of these sacred cows are going to be addressed.”

At the Suburban Coalition event, local officials asked Widmer in general terms about progressive taxation as part of the way out of the fiscal dilemma at the state and local levels. Widmer said the state doesn’t have the revenues to finance the expectations laid out for public services.

“We’ve either got to have a discussion about additional revenues or about reducing our expectations,” said Widmer. “Nobody wants to face either side of that coin.”

Later, Rodrigues, asked about the criticism of “regressive” state efforts to expand the Lottery and tax smokers, described the income tax as the state’s most progressive tax lever.