From the Executive Director
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From the Executive Director Good tax politics doesn't make for good tax policy |
from NewsLink, Vol. 3 No. 3, Spring 1999
What makes for good tax politics doesn't necessarily make for good tax policy.
In early May, the Massachusetts House of Representatives voted to drop the personal income tax rate from 5.95% to 5.75%. Though modest, the proposed new rate is at least headed in the right direction. Then by a vote of 153-0, the House passed a series of targeted tax cuts geared toward “working families.” The measure is headed to the Senate.
The House package includes an expanded child-care deduction. It also includes dependent deductions, to be phased in over three years, which would be expanded to include elderly and disabled dependents.
The cost to the state for both the 5.75% income tax cut and the sundry targeted tax cuts is $430 million.
In order to pay for the targeted tax cuts, the House would effectively raise taxes by scaling back a capital gains tax cut established in 1994. (The legislature revised the tax liability for holding an asset for six years. Under current law the tax rate for such an asset is zero.)
There is a problem here. Tax policy should be evaluated in terms of job creation, expanded payrolls and shored up capital stock. In short, good tax policy improves a state's comparative advantage and benefits the lives of everyone living there.
Tax policy that is engineered to some desired social end, without regard to the economic consequences to the state or all its residents, is quite simply bad tax policy. Designing tax policy according to what feels good may be political expedient, but it is at best economically naive and at worst reckless.
An across-the-board tax cut to 5%, such as the one proposed by Governor Cellucci, is the superior method of stimulating and sustaining economic growth.
Targeted cuts in Texas
On behalf of the Texas Public Policy Foundation, we recently built a Texas STAMP model to analyze several tax-cut proposals in the Lone Star state. Among the most contentious was a plan to establish a research-and-development credit in the state. Texas STAMP showed that the credit would do little to create jobs for Texans. The Federal Reserve Bank of Texas agreed, issuing its own report that effectively concurred with Texas STAMP.
Ending the “T”Party
When Aniko Laszlo, a senior lecturer in economics, presented her analysis of the Massachusetts Bay Transportation Authority, we were as stunned as anyone by what she found: a budget-busting agency that pays “Delivery Persons” $40,000 a year before benefits; that fails to meet efficiency standards achieved by comparable authorities in and out of the state; that costs the average state taxpayer $200 a year; and that has become a virtual free ride for its users. We've offered our solution to the situation; there are others. The legislature is now deciding how the MBTA will be reformed. What's clear to us is that the good time should end. The only ones currently not invited to this party are the taxpayers.
Former Mass. HHS Chief joins BHI
In March, Joseph Gallant, former Massachusetts Secretary of the Executive Office of Health and Human Services, joined BHI as Director of Social Policy Studies. Gallant's lifelong experience in the human service delivery system is playing a key role in what we call “the next step of welfare reform.” We're glad to have Secretary Gallant on board!
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