The Price of Government in ‘Taxachusetts’

by David Osborne

Originally appeared in the June 24, 2004 edition of the Boston Globe.

It is budget time again. Governor Romney continues to argue that we can afford to cut income taxes by $225 million this year and $450 million next — about $100 a year for the average taxpayer. Legislative leaders of both parties disagree. The Legislature is right.

Next year we still face a structural deficit — a mismatch between projected revenues and spending — somewhere in the $100 million to $400 million range, according to the Massachusetts Taxpayers Foundation. The Legislature’s budget is balanced using $700 million in one-time revenues, including money from the rainy day fund.

We have cut spending by more than $3 billion since 2001. We have thrown poor people off health insurance, decimated public health programs, and gutted outpatient mental health care and alcohol and drug treatment. We have cut education and local aid by 27.6 percent, higher education by 26.5 percent, and human services by 14.2 percent.

Local governments and school districts are reeling under the impact. Boston has eliminated 9 percent of its work force; Springfield is on the brink of receivership. Since Sept. 11, 2001, local governments have shed 945 police officers and 798 firefighters, according to a survey by the Senate Post Audit and Oversight Committee. Nine out of 10 chiefs say their departments are unprepared for terrorist attacks.

Some may assume that since they live in “Taxachusetts,” they not only deserve a tax cut, the state needs one to remain competitive. Don’t believe it.

The fairest way to compare tax levels is by the percentage of personal income citizens spend on state and local taxes, fees, and charges. Think of this as the “price of government.” In 2000, the most recent year for which data is available, we had the fifth lowest price in the nation. Since then, we have reduced the income tax from 5.85 to 5.3 percent.

Tax cut advocates prefer to cite revenues per capita, pointing out that the commonwealth is ninth highest on that scale. But the price of government is a much fairer measure, for several reasons: It counts all taxes, fees, and charges; it counts all levels of state and local government, including public schools; and it measures revenues against personal income, not just the number of citizens.

When personal income goes up, personal spending goes up. Rising spending increases demands on government. The more we drive, the more we need good roads. The more we fly, the more we need good airports. And the more affluent we become, the more we demand better schools, safer streets, and cleaner water and air. Rising personal income drives rising service expectations.

Massachusetts residents are more affluent than those in most states. By assessing taxes, fees, and charges at a relatively low rate, as we do, we can still produce more revenue per capita than most states.

During the 1970s, we spent roughly 15 cents of every dollar of personal income on state and local taxes, fees, and charges — well above the national average of 13.7 cents. Proposition 2 1/2 brought that down to about 13 cents by 1982, below the national average. The relentless march of healthcare costs and other budget busters forced it back up to about 14 cents in the 1990s, even while personal income grew rapidly. But it remained well below the national average of 15 cents on the dollar. It is true that citizens voted in 2000 to gradually roll back the income tax from 5.85 percent to 5 percent. But our timing was awful. After the recession crippled revenues, the Legislature wisely froze rates at 5.3 percent. Were we to go ahead with the rollback today, rather than waiting until we can afford it, we would be cutting our own throats.

The problem in Massachusetts is not high taxes. It is underinvestment in the knowledge and skills of our work force, in the infrastructure that supports economic growth, and in efforts to protect our quality of life.

If we want to remain competitive despite our high costs for land, labor, and housing (but not government), we must have a better skilled, better educated work force than our competitors. Let’s not turn Massachusetts into a low-skill state just to banish a label that no longer applies.

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