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Massachusetts Considering Income Tax Increase, New Transportation Revenue

1 min readBy: Joseph Bishop-Henchman

Massachusetts Governor Deval Patrick (D) yesterday proposed the following package of taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. changes:

  • Broaden the income tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. , double the personal exemption, but raise the single-rate income tax from 5.25 percent to 6.25 percent. Overall, this would raise $2.8 billion in additional tax revenue.
  • Reduce the state sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. from 6.25 percent to 4.5 percent, reducing revenue by $1.1 billion.
  • Business tax changes that would raise an additional $194 million.

If enacted, the income tax increase would push the state's rate past neighboring Rhode Island's top rate (5.99 percent), but still keep it below Connecticut's top rate (6.7 percent) and Vermont's top rate (8.95 percent). New Hampshire, of course, has no tax on wages, and has a 5 percent tax on dividend and interest income.

Earlier this week, the state Department of Transportation outlined a number of options (PDF) to boost spending for transportation by about $1 billion per year. These included:

  • A new payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. of 0.16 percent for workers in the Boston area. While only Nevada has a statewide payroll tax (1.17 percent on wages over $62,500, minus health care deductions), but similar payroll taxes exist in Newark (NJ), New York City, and Portland (OR). Tax would raise $100 million per year.
  • Raise the gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. or index it to inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. .
  • Increase the state sales tax from 6.25 percent to 7.75 percent.
  • Increase the state income tax from 5.25 percent to 5.66 percent.
  • Impose an additional vehicle registration tax based on carbon emissions (motorcycles and hybrids pay $15, hybrid SUVs and cars pay $30, SUVs pay $60, heavy trucks pay $85).
  • A 2.4-cents-per-mile vehicle miles traveled tax (VMT), collected during the annual safety inspection.
  • Routinely increase vehicle taxes and fees, tolls, and transit fares by 5 percent every other year.
  • New tolls, which would require federal approval.
  • Maintaining tolls on the Western Turnpike after the bonds are paid off in 2017.