Raising Rates on Unearned Income: An Equitable Way to Avoid Cuts and Support a Robust and Just Recovery
For each one percentage point increase in the state tax rates applied to unearned income, the Commonwealth could raise roughly $465 million a year to …
Testimony for the House and Senate Ways and Means Committees, the Joint Committee on Revenue, and the Executive Office of Administration and Finance Economic Roundtable
We’re clearly in a budget crisis. Which is extremely troubling at this time, when we need real, comprehensive relief for families and individuals — so many of our neighbors, young and old, are struggling with accessing basic necessities and keeping healthy and well.
Our Commonwealth’s budget – how we raise revenue through taxes and fees, and how we spend that revenue – is the clearest picture of our shared values. Considering the revenue side picture is crucial, but the other side of the ledger is just, if not more important.
ALL TAXES REPORTS
Taxes are the main way communities pay for the things we do together. Taxes pay for essential programs and infrastructure we take for granted, like fire protection, public education, and health inspectors; roads, bridges, and public transit; and the support for people facing hard times. Examining how much people at different income levels pay in taxes is important when considering the fairness of tax policy.
The new federal tax law reduces federal revenues by approximately $1.5 trillion largely by cutting taxes for corporations, people receiving inheritance from very large estates, and high-income owners of pass-through entities such as partnerships. The law provides reduced tax rates and relatively smaller tax reductions to most wage and salary earners while disproportionately benefiting those with high incomes. This paper examines the distribution of tax cuts, the impact of how they may be paid for, how the law interacts with Massachusetts policies, and what the Commonwealth could do to take its own direction different from the federal government.
The federal government has enacted very large tax cuts targeted mostly at higher-income taxpayers. The resulting loss of an almost $1.5 trillion in federal revenue is likely to lead to cuts in federal support for programs that are important to people in Massachusetts and to the state budget. Amid these deep tax cuts, a new federal limit on the deductibility of state and local taxes (SALT) has received a lot of attention. Households that itemize deductions and pay over $10,000 in combined state and local taxes will no longer be able to deduct more than this amount when calculating their taxable income for federal taxes.
Almost 20 years ago, a penny of the sales tax was dedicated to the MBTA to be a steadily growing source of revenue for the transit system. But despite some help from the Legislature, the sales tax transfer has grown slower than the economy, creating a persistent gap between the projected funds and actual sales tax transfers. Sales taxes have underperformed for the MBTA as a result of a shift to services, some transactions moving online, and exclusion of fast-growing meals tax revenues from the MBTA. An appendix explains the formula for determining the MBTA sales tax transfer and how other sales taxes are allocated.