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Spendthrift State House: Legislature axes Weld's tax cuts

The rejection of the governor's tax cuts is not about fiscal prudence. It's about making sure the Legislature is able to honor big spending.

David G. Tuerck

April 1997

The Massachusetts House is scheduled to begin debate this week on a record-setting $18.3 billion budget for fiscal 1998. The budget as drafted by the Massachusetts House Ways and Means Committee represents an increase of about $500 million more than current expenditures and about $55 million more than Governor William F. Weld recommended.

State spending has grown by 34% since the depths of the 1990 recession. Even with this explosion in spending, the state has run a budget surplus every year since FY92. The result has been the accumulation of some $543 million in the state's rainy day fund.

With these rosy statistics in mind, Weld recommended the adoption of seven tax cuts that would have "cost" the state about $82 million or less than 1/2 of 1 percent of budgeted expenditures. These include a reduction of the 12% tax on unearned income, an increase in the dependent tax deduction from $600 to $1,600 and the elimination of the telecommunications tax.

While adoption of so modest a set of tax cuts would seem to be a no-brainer for even the most fervent big-government legislator, House Ways and Means leaders turned down all seven. Adorning itself in the cloak of fiscal responsibility, the committee solemnly warned against "ambitious new tax cuts." Resisting the "politically desirable," it postponed further tax cuts for an assessment of our "long-term capacity" to afford them.

So it's, "Read my lips. No new tax cuts." The ostensible purpose is to guard against federal aid cuts and any future Dukakis-like budget deficits. The more likely purpose is to make sure that there is enough money to fund education reform and other politically sensitive spending projects.

A few weeks ago the governor agreed to raise the cap on the rainy day fund. This means that the state's surplus must grow to $870 million instead of $543 million before taxpayers get an automatic tax break. Taxpayers have received only one automatic tax cut since 1986. Under the new cap, it's unlikely they'll see one again.
Building up the rainy day fund sounds like fiscal prudence. It sounds like what sensible households do when they plan for unexpected expenses like a leaky roof, a blown transmission or a new refrigerator.

The analogy is misleading, however. While government is subject to the same fiscal ups and downs as the ordinary household, it has one advantage: It can spend more by simply raising taxes.

The invocations of fiscal prudence now being heard amount to a transparent attempt to make hay while the fiscal sun shines. The real agenda is to guarantee enough future tax money now to make sure that the state can continue to feed its spending habits even in the face of predictable declines in tax revenue and federal reimbursements.

The committee wants to predicate further tax cuts on an assessment of our capacity to afford them. While taxpayers await that happy day, they might want to ask where these born-again guardians of fiscal prudence were over the last seven fat years of government expansion.

From 1991 to 1996, state spending grew at an average annual rate of 4.3%. The growth of the Boston consumer price index over the corresponding period was 2.4%.

What, we might ask, did the additional growth in state spending accomplish? The 1993 education reform act will eventually add $1.7 billion a year to state spending. Have schools improved? The data say no. State assistance to the poor has grown by 75% since 1988. Has the poverty rate gone down? The data say no. Do we have a new convention center or football stadium? Are we safe from future highway and bridge toll increases?

In view of the apparent disconnection between the growth of spending and the improvement of government services, let's consider what might have happened if our state leaders had discovered fiscal prudence earlier. Suppose the state had limited the growth of spending since 1991 to 3% per year instead of 4.3%, enough to cover inflation and to allow for some "real" growth as well. How much in additional funds would now be available to tide us over future rainy days, if the tax dollars thus saved had been added to the rainy day fund rather than spent?

The answer is $3.5 billion. That's more than the accumulated deficits of the recession years 1988-1990. Had the Legislature applied the same principles of fiscal prudence to spending then as it presumes to apply to taxpayers now, it could "afford" to offer tax breaks that would make $82 million look like small change.

The rejection of the Governor's tax cuts is not about fiscal prudence. It is about making sure that the legislature is able to honor spending commitments that were easy to make when tax revenues were growing by leaps and bounds. With the fiscal belt tightening, it is the state's capacity to honor those commitments that should be questioned, not its capacity to offer a few tiny tax cuts.

 

This opinion editorial first appeared in The Boston Sunday Herald on April 13, 1997.

Format revised on 18 August, 2004

 

 

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