April 28, 2005
Loophole Proposal Produces Less Economic Damage than the Original
analysis by The Beacon Hill Institute at Suffolk University finds that
Governor Mitt Romney's recently revised plan to close corporate tax
loopholes will recoup millions of dollars of investment and disposable
income that would have been lost under his original plan. However, due
to the negative economic effects resulting from closing the loopholes,
significantly less tax revenue will be generated than state and local
officials expect. The most surprising result indicates neither of the
plans filed by the Governor would significantly impact employment levels
in the Commonwealth.
BHI bases its findings on its State Tax Analysis Modeling Program (STAMP).
BHI finds that, under the original plan filed in January, the state
would experience the following by FY 2008:
o an investment loss of $510 million
o a drop in disposable income of $68 million
o an increase in tax revenue of $105 million, $58 million less than
state officials projected
By comparison, the new tax loophole plan, filed in March, would cause:
o a drop in investment of $119 million, a difference of $391 million
o a loss in disposable income of $30 million, a $38 million difference
o an increase in tax revenue of $63 million, $22 million less than official
on BHI's findings, John Barrett, Director of Research of the Institute,
said that "State officials need to be aware that closing corporate
tax loopholes is not without consequences." Said Barrett: "Closing
the loopholes lowers the return on capital, which leads to drops in
investment and disposable income."
2005, Governor Mitt Romney and the legislature proposed a series of
measures to close corporate tax loopholes that would raise an additional
$170 million in revenue, marking the third consecutive year that the
Governor and the legislature proposed legislation to close corporate
tax loopholes. However, the Governor's third trip to the "loophole
well" proved too much for local business leaders. Their outcry
prompted the Governor to file House Bill 2606 in March, a modified proposal
that closes fewer loopholes than the earlier proposal.
"To believe that businesses do not consider state tax levels when
making investment decisions is naïve at best. While jobs are not
at risk, the Massachusetts economy does not go unharmed by closing these
loopholes," said Barrett.
Hill Institute provides policy analysis through its State Tax Analysis
Modeling Program (STAMP). Information about STAMP
and a copy of the Institute's FactSheet
study may be obtained at www.beaconhill.org
or by calling BHI at 617-573-8750.
5/3/05 11:03 AM