Massachusetts Rejects Higher Income Tax

July 8, 2013

Joseph Bishop-Henchman

Joseph Bishop-Henchman

Back in January, Massachusetts Gov. Deval Patrick (D) proposed a significant change to the state's tax system. He proposed raising the state's one-rate income tax from 5.25 percent to 6.25 percent while doubling the personal exemption and ending other carveouts, cutting the sales tax from 6.25 percent to 4.5 percent, along with higher cigarette and gasoline taxes.

The income tax increased ended up going nowhere, along with the sales tax reduction. (The Massachusetts Budget & Policy Center details what made it into the state budget, approved by the Legislature and now on the Governor's desk.) The $1-per-pack cigarette and 3-cent-per-gallon gasoline tax increases are in there, with the latter especially contentious: the Legislature relies on Massachusetts Turnpike tolls after their scheduled 2017 expiration, while the Governor wants a higher gas tax.

The budget also extends the sales tax to purchases of custom software, raises sales tax revenue through an agreement with Amazon.com, and pockets some revenue by delaying yet again the implement of FAS 109 tax deduction for corporations.

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A 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.

A 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.

A tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state/local taxes paid, mortgage interest, and charitable contributions.

A 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.