For Immediate Release
March 11, 1998
Frank Conte, Director, Communications
New analysis shows House leadership's tax cut proposal offers relatively small benefits compared to other proposal
Boston, March 11, 1998 - A tax cut proposal being considered today by the Massachusetts House of Representatives offers relatively small benefits to the Massachusetts economy. This is according to an analysis performed by the Beacon Hill Institute at Suffolk University.
The House leadership proposal would cut the tax rate on earned income from 5.95% to 5.7%. An alternative proposal, offered by acting Governor Paul Cellucci, would cut the same tax rate to 5%. The leadership's proposal would increase the state capital stock by $5.1 billion and would create about 28,615 new jobs by 2001. The governor's proposal would roughly quadruple these results: $19.6 billion in new capital stock and 109,965 new jobs by 2001, according to the BHI analysis released today.
The net revenue loss from the cut in the tax on earned income is $304 million for the leadership's proposal and $1.184 million for the governor's. See the table.
Leadership's and Governor's Tax Cuts on Earned Income in 2001
Proposal Change in Payroll Change in Jobs Change in Capital Stock Net Tax Revenue Effect Leadership $1.2 billion 28,615 $5.1 billion -$304 million Governor* $4.6 billion 109,965 $19.6 billion -$1.184 billion
*Updated from BHI FaxSheet, September 24, 1997.
State officials anticipate an $800 million surplus this year for the second year in a row. This suggests that the state can afford a more generous tax cut, which, according to our analysis, would do more to create jobs and spur capital spending, said Dr. David G. Tuerck, Beacon Hill Institute executive director and chairman of Suffolk University's economics department.
The leadership's proposal makes changes in Massachusetts taxes on investor income, raising the tax on long-term capital gains and cutting the tax on other investor income. It also expands and liberalizes exemptions for dependents and deductions for children.
The increase in the tax on long-term capital gains reverses a 1994 commitment to investors, said Tuerck. As for the more generous policy toward exemptions and deductions, that may be good for some purposes, but it does little to expand the economy. Economic expansion requires deep cuts in marginal tax rates, cuts of the kind that are absent from this proposal.
The Beacon Hill Institute at Suffolk University in Boston applies state-of-the-art economic methods to the analysis of current public policy issues. For a BHI FaxSheet with further information and methodology, call BHI at 617-573-8750.
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