Skip to content

Massachusetts May Get an Income Tax Cut

1 min readBy: Lyman Stone

Thanks to a provision of Massachusetts’ state laws that requires automatic 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. cuts if revenues grow very rapidly, Massachusetts taxpayers may enjoy lower income tax rates in 2014. After confirmation from the Department of Revenue on November 15 that a key benchmark has been met, only one more revenue growth benchmark remains.

The proposed income tax cut would amount to just 0.05 percentage points, worth $60-$70 million a year. In order to get that cut, the state must record positive 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. -adjusted growth for the three months ending November 30. Given the strong revenue growth we’ve seen in many states earlier this year as states come out of recessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years. , it seems entirely plausible that Massachusetts may hit those revenue benchmarks.

As we noted in a discussion of West Virginia’s revenue-tied corporate tax cuts, this strategy for reducing taxes based on rising revenue is a practical, responsible way to limit the growth of tax burdens. When revenues rise above what legislators expected to need for budgetary purposes, having an automatic method for returning the windfall to taxpayers makes sense, and removes the temptation for legislators to ratchet spending up, setting the state up for shortfalls if revenues ever decline in the future.

Massachusetts has the 8th highest tax burden in the nation, at 10.4 percent of income in 2010. It collects $1,549 per person from the state income tax, for the 5th highest collections nationally. With taxes so much higher than the norm, Massachusetts taxpayers deserve relief, and this is a step in the right direction.

Read more on Massachusetts.

Follow Lyman on Twitter.