Tax Cut Proposal Would Create 105,000 Jobs, Generate $21 Billion in New Spending

BOSTON, September 24 - If voters approve a proposed tax cut, Massachusetts would gain more than 105,000 jobs, payrolls would expand by more than $4.9 billion and spending on new capital would increase by $21 billion, according to a recent examination of the proposal by the Beacon Hill Institute at Suffolk University.

BHI looked at the economic impact of a proposed tax cut, currently circulating as a ballot initiative, that would reduce the earned income tax rate from 5.95 percent to 5 percent over three years. The effects of the tax cut after it is fully implemented by the year 2001 are shown below.

"It's basic economics," said David G. Tuerck, Beacon Hill Institute Executive Director. "Taxes penalize work and investing. If Massachusetts lowers taxes, it encourages businesses to create jobs and to spend more on capital goods like machinery, computers and construction equipment."

Economic Effects of Tax Cut Initiative

Year Change in Payroll Change in Jobs Change in Capital Stock Loss of Tax Revenue
1999 $1.543 billion 36,689 $6.5 billion $393 million
2000 $1.566 billion 33,369 $6.7 billion $404 million
2001 $1.821 billion 35,223 $7.8 billion $474 million
Total $4.930 billion 105,281 $21.0 billion $1.271 billion

Any tax loss the state would experience would be partially offset because of the positive economic effects the tax cut would create. "The revenue loss would be minimal, about 6 percent of the total state budget. Massachusetts is not going to miss that money. For the past several years, the state has collected more money in taxes than it has budgeted for expenditure, a trend that is expected to continue," said Tuerck.

Proponents of the ballot initiative, which was certified by Massachusetts Attorney General Scott Harshbarger on September 3, must gather the signatures of 64,928 registered voters by December 3, 1997 in order for the proposal to be sent to the Legislature for approval. If the initiative is approved, in November 1998 voters will decide whether to enact the tax cut.

The Beacon Hill Institute at Suffolk University in Boston applies state-of-the-art economic methods to the analysis of current public policy issues.

To obtain a BHI FaxSheet describing methodology, call BHI at 617-573-8750.

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