U.S. Senate Polling Shows Tight Race

Posted on February 15, 2013 by billmanzi

One group of folks that certainly must be delighted by all of the Massachusetts election activities has to be the polling community. Here in Massachusetts there certainly has been no down time for them. With the upcoming Special Election for U.S. Senate they will be busy for the foreseeable future. WBUR and Mass Inc have just put out some polling data on the Democratic race between U.S. Reps. Steve Lynch and Ed Markey. I have looked it over, and I think it certainly identifies what might be the major point in that race: What ballot will be taken by unenrolled voters? Will they pull a Democratic ballot or a Republican one? The Republicans appear to have four candidates in the race, and at first glance at least three have a plausible road to victory. So there will be a contested primary. What does that have to do with the Democrats? The numbers please!

Let us start by looking at the favorable/unfavorable data. We see some similarities, with Markey having a higher unfavorable. Lynch comes in at 29%/12%, with 30% having no opinion, and 27% never having heard of him. Markey sits at 29%/19%, with 26% undecided, and 25% having never heard of him. Obviously both candidates have an opportunity to shape voter views on themselves, and maybe to shape voter views on the other guy. That is where finances may play a large role. The survey asked which ballot the respondent would be likely to pull, with 48% saying Democratic, 26% Republican, and 27% not willing to say, or saying neither.

In the main event Markey leads Lynch by a 38% to 31% margin, with 26% undecided, and 4% with “other”. So we now return to the question of what the Republican primary has to do with the Democratic primary. Pollster Steve Koczela talked about that factor: From WBUR:

“One of the interesting things about the Democratic primary is it could actually be affected by the Republican primary, and what I mean by that is that where unenrolled voters vote on primary day actually will affect the Democratic primary,” Koczela said. “Right now, Steve Lynch actually does slightly better, I mean within the margin of error, but slightly better among unenrolled voters, and much better than he does among registered Democrats, where Markey has a pretty significant lead.”

The Markey lead with Democrats stands at 42% to 25%, but Lynch leads with unenrolleds who are planning on voting in the Democratic primary by a 38% to 34% margin. So that dynamic certainly will play some sort of role in this race. I am sure that the race is closer than Ed Markey would like, and my own guess is that it will tighten even more in the next few weeks. Another interesting figure shows that Lynch is the stronger candidate against a generic Republican, leading the unnamed R by a 39% to 23% margin, with 38% undecided. Markey’s lead over that generic R is at 38% to 28%, with 34% undecided. That difference is reflected in the larger lead that Lynch has over Republican Dan Winslow, with Lynch leading that match-up by a 44% to 20% margin, with 36% undecided. Markey leads that match-up by a 43% to 24% margin, with 34% undecided. Lynch, at least for today, seems to be the stronger general election candidate.

The survey showed some political strength for former Senator Scott Brown, who has a 58% favorable rating, with 62% saying he should run for office again. Mass Inc also asked about support for Governor Deval Patrick’s program of tax increases to fund transportation and education initiatives. Those that “support” the proposal, (somewhat or strongly)come in at 42%, with those opposed (somewhat or strongly) coming in at 50%, with undecided at 8%. The Governor, for all of the talk about strong opposition to tax hikes, appears to be closer than many might have thought.

The Senate race is just starting, but the outlines of the race are taking shape. After looking at the numbers you would still have to make Steve Lynch the underdog, but you can see a path to victory for him. Link to the WBUR poll here.

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States and Localities Continue to See Large Health Care Cost Increases

Posted on February 14, 2013 by billmanzi

A new analysis by the Pew Project for the States shows that while health care costs nationally are rising at a slower rate the costs for local and state governments are rising at double digit rates, and consuming an ever larger share of those budgets. From Pew:

While total U.S. health care spending grew slowly in 2011, rising about 4 percent, the story for state and local governments was dramatically different, according to the latest data from the Centers for Medicare & Medicaid Services. Health care spending by states and localities increased 10 percent, and consumed a larger share of revenues—about 3 out of every 10 dollars—than has been the case for these expenses since at least 1987.[1]

The POOR economy has driven a large increase in medicaid rolls, with much of that financed for three years by the federal stimulus program (ARRA). But that money has dried up. Pew talks of that dynamic, and the resulting impacts.

Under the American Recovery and Reinvestment Act (ARRA) and later legislation that extended certain ARRA provisions, the federal government contributed an extra $103 billion to Medicaid, with states receiving the bulk of that total in 2009 and 2010. So, while the recession swelled Medicaid rolls and drove increases in total program expenditures, states’ share of Medicaid spending actually declined from $146 billion in 2008 to $135 billion in 2010.[2]

The extra federal Medicaid money stopped flowing at the end of June 2011, which was the primary reason state Medicaid expenditures rose to $165 billion in 2011—a 22 percent increase from 2010.

So the locals are seeing a big increase in overall costs. And for those that do not believe or understand what is driving our nation towards insolvency look no further than health care. Without addressing the underlying and continuing spiral in health care costs there ultimately is no solution to our fiscal problems.

For state and local governments, health care spending as a share of revenue increased from 16 percent to 30 percent from 1987 to 2011 (the entire period for which data are available). After adjusting for inflation, their combined health care expenditures increased by 241 percent over that time period.[3]

The most significant elements of this expansion were contributions to public-employee health insurance premiums and Medicaid, which experienced inflation-adjusted increases of 430 percent and 315 percent, respectively.

Pew’s analysis of projections from the Centers for Medicare & Medicaid Services shows that state and local spending is expected to rise nearly 55 percent in inflation-adjusted dollars between 2011 and 2021, driven largely by anticipated growth in Medicaid.

Looking further ahead, the Government Accountability Office (GAO) warns that health care spending is the primary driver of the long-term fiscal challenges that it expects state and local governments will face. According to the GAO’s simulation, state and local health-related expenditures will nearly double as a percentage of gross domestic product between 2012 and 2060.[4]

A little bit of a silver lining is the statistic cited by Pew showing that spending per individual in medicaid grew at a slower rate than the private insurance market did. Some solace, but the underlying trends and numbers are still pretty scary, and do not portend well for our future fiscal health.

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Sequester Blues

Posted on February 12, 2013 by billmanzi

Just about all sides agree that Congress is a dysfunctional body, but that is where agreement ends. With both the sequester and the Continuing Resolution that funds the federal government staring us in the face there appears to be little or no communication between the parties to try to resolve the ongoing budget saga. I had an opportunity to listen to U.S. Congress Reps. Niki Tsongas and John Tierney at a Merrimack Valley Chamber of Commerce breakfast this week, and while Congresswoman Tsongas expressed “optimism” and had words of praise for Speaker Boehner I do not share that (short term) optimism.

The Republicans, having been rolled on taxes (in their minds), during the fiscal cliff imbroligio, have now dug in on the sequester, saying that they will allow it to occur even though Defense takes a major hit from that process. They will only consider other “cuts” to replace the sequester cuts, with the original House bill passed to replace the sequester simply replacing the defense cuts with deep cuts to social programs helping our citizens that are in the most need. It is a non-starter. The President seeks some additional revenues to go along with the budget cuts to get to the sequester number, and the Republicans are saying that is a non-starter. At this point you might expect me to say that negotiations have begun to bridge the gap, but alas I cannot say that. Both sides have now determined that political positioning in advance of the sequester will determine the political winners and losers once the sequester cuts are imposed. Is that any way to run a government? It is how we run ours. Let us take a look at some of the facts involved, and see if we can divine what might happen after the sequester.

Both sides are now seeking political advantage, and the lack of trust that has been built up certainly makes that unsurprising. But what is the fight really about? Let us look at the claims.

The Republicans claim that they “have done revenues” through the fiscal cliff deal. In general they generically claim to be supportive of the Simpson-Bowles framework for deficit reduction, and where it serves their purpose they trumpet that loudly. They also pose the rhetorical question “You just raised taxes, why are you asking for ANOTHER TAX INCREASE?” We are done with tax increases!!!! Don’t they have a point? Has the President gone “tax crazy”? A close examination of the facts leads you to see the type of shell game that is being played here. wHAT ARE THOSE FACTS?

The Simpson-Bowles Commission advocated for increased revenues through a reform of the tax code that would close loopholes and actually lower and simplify marginal tax rates. The Commission assumed, in their so called “baseline”, that the Bush tax cuts for top earners would be allowed to expire. They calculated that revenue in advance of their calculations, and they were right to do so. The President and Democrats compromised on the issue, raising the threshold for top earners seeing an increase in marginal tax rates from the $200,000 mark to the $400,000 mark. Bottom line is that the revenue raised, over ten years, went from $800 billion to $600 billion. Simpson-Bowles, after assuming $800 billion in revenue from that change as a part of their baseline, raised taxes by $1.6 trillion over ten years. They achieved this largely, though not exclusively, through loophole closings. What does all that data tell us?

It shows that Republicans, in fighting a scorched earth policy on taxes, now consider the revenue question closed after less revenue was achieved than the Simpson-Bowles baseline. The President, although he has not endorsed Simpson-Bowles, simply wants to implement the other revenues that are envisioned by that Commission through tax reform. And while I agree that the time frame for achieving tax reform is simply not there in light of current budgetary calendar deadlines the question needs to be asked as to why that is? The President has asked repeatedly for a large deal on the fiscal question, but Republicans see those negotiations as a one way street, with offers that are laughable in terms of revenue offered, especially in light of Simpson-Bowles. Even the Republican claim that the fiscal cliff deal offered revenue but no cuts needs to be examined closely. The claim itself is true, but again we must ask why? The Republicans gave up on the revenue question for political reasons, but the President had offered, again, a larger deal that would have mirrored Simpson-Bowles in terms of deficit reduction achieved. It could have, and would have, included cuts that may have offended some Democratic constituencies. The Republicans opted for the final product by boxing themselves in, and refusing to negotiate a larger fiscal deal.

I realize that negotiations require two to tango, and Republicans will see the above as mere partisanship. But it is all true. The President, under normal circumstances, might be subject to some criticism on the poor results of all of these negotiations. In my view he has had it with the failure of the Republicans to negotiate in good faith prior to the election. They took a shot, and they lost. As I am fond of saying “bad faith begets bad faith”. If the President has taken a tough position now it is as a direct result of the Republicans acting in bad faith before the Presidential cycle, confident in the belief that the President would be defeated. At this point the idea that the President will bring forward modifications to entitlements for the crumbs being offered by the Republicans is actually laughable. A ten year plan that hits the Simpson-Bowles deficit targets requires a lot more revenue than the Republicans are willing to give, and on that basis we will lurch from fiscal crisis to fiscal crisis. And I believe that the Sequester will go into effect. What then?

The Republicans will be under immense pressure from the military, from defense contractors, from the Republican Party wing dedicated to military interventionism around the world. That prospective Republican civil war over the sequester has already started. Bill Kristol, over at the Weekly Standard, has made a strong case against allowing the sequester to occur. He believes it will debilitate our military:

Republicans—as well as Secretary of Defense Leon Panetta and defense experts across the political spectrum—have explained so many times how damaging the sequester would be to our military that there’s no need to restate the case here. But consider last week’s announcement by the Navy that, just 48 hours before its deployment from Norfolk to the Gulf, the USS Harry S. Truman would not sail but instead be put on alert to “deploy on short notice.” This will leave only the USS John C. Stennis in the Gulf, until it is replaced by the USS Dwight D. Eisenhower—meaning our aircraft carrier presence in the Persian Gulf will be reduced from two carriers to one. Christopher Harmer, naval specialist at the Institute for the Study of War, explains the consequences:

It’s a drastic move: The continuous deployment of two U.S. aircraft carriers to the Persian Gulf area guarantees an immediate and crushing military response to any provocation—especially to one coming from the Iranians. .  .  . The typical deployment pattern for two carriers in this area is to station one carrier in the Persian Gulf, inside the Strait of Hormuz, and one outside the Persian Gulf, patrolling the Arabian Sea, Somali Basin, Gulf of Aden, Red Sea, or Indian Ocean. .  .  . Maintaining one aircraft carrier inside and one outside the Strait of Hormuz ensures that the Iranian Navy is constantly aware that any attempt to close the Strait will result in an overwhelming military response. A two-carrier presence has a much greater deterrent effect than a single carrier would.

In light of Kristol’s views on matters in the Middle East this is an unacceptable outcome for him and the neo-con wing he speaks for. But Charles Krauthammer had advocated for letting the sequester occur. So Republicans continue to not have a cogent position, even on something as fundamental as the sequester. That “divergence” makes them a difficult group to negotiate with, as leadership simply cannot deliver votes for ANY deal. I am not sure how the President can get blamed for the lack of a deal when he is negotiating with that group. And as the American public surveys the wreckage after the next round I do believe that they will reach the same conclusion.

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Storm Management

Posted on February 9, 2013 by billmanzi

Having a bit of storm management myself I think that Governor Patrick did an outstanding job of managing the state response to the great storm of 2013. The Governor has a strong record in managing natural disasters, and his performance here was in line with those past performances. Despite that record of successful management the Governor took a wee bit of flack over the driving ban he imposed during this storm. I had a bit of fun over that with my radio pal Ted Panos, who was out surveying the storm yesterday. But the criticism was not all lighthearted, as some folks appeared to be genuinely put out by the driving ban. They could not be more wrong.

The job of a CEO is to ensure that the community served is safe for residents, and that safety includes the ability of public safety personnel to be able to traverse the roads. The Commonwealth had the advantage, this time, of plenty of advance notice of the storms arrival. The Governor, knowing the severity of the storm would tax snow removal personnel, rightly cleared the roads to make their jobs easier, and our recovery faster. Not to mention the fact that unprepared drivers would be placing themselves in harms way, as we have seen many times before.

The rhetoric was familiar, with accusations of “nanny state”, and other such nonsense. It was as if the Governor had been hoping for a big storm so he could force people to stay home. Maybe that is why he ran for Governor. In any case Chief Executive Officers need to administer, and provide for the overall benefit of the public. The Governor did a very good job, and I would be more than willing to be critical if it was warranted. It was not.

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Massachusetts House Passes Supplemental Budget

Posted on February 8, 2013 by billmanzi

The Massachusetts House of Representatives passed a supplemental budget this week which added some spending, and dealt with the Patrick Administration’s request to deal with a $550 million dollar shortfall in this budget cycle. The House declined to accept the Governor’s recommendation for a 1% cut to local aid, but ratified the further utilization of the rainy day fund advocated by Governor Patrick. Notable action from the House included: (State House News Service)

The House voted 141-13 for a bill delivering $44 million for the emergency shelter system, $25 million for public counsel services to eligible defendants, and $30 million to cover costs associated with an evidence tampering scandal at a state drug testing lab. Lawmakers said costs to taxpayers from the drug lab scandal, which House budget chief Rep. Brian Dempsey called a “disgrace,” could rise even higher. …The supplemental budget submitted by Patrick draws another $200 million out of the state’s rainy day fund and makes about $25 million in cuts to non-executive branch agencies on top of the $225 million Patrick slashed within the executive branch to help bridge a projected $540 million mid-year budget gap brought about by lower-than-expected tax revenues. The House jettisoned Patrick’s request to further cut local aid by $9 million and did not include another $10 million in cuts that required legislative approval.

Even though the House spared localities from the 1% cut ($9 million statewide) the Governor, using his 9C Budgetary authority, had reduced other local aid accounts by $28.5 million in December. From the Massachusetts Municipal Association letter to the House of Representatives:

In December, Governor Patrick used his “9C” emergency budget powers to cut $28.75 million from important municipal and education aid accounts that fund local budgets, including the elimination of $11.5 million from the Special Education Circuit Breaker program, $5.25 million from the McKinney-Vento account to reimburse cities and towns for the transportation of homeless students, $1 million from regional school transportation reimbursements, $6 million from municipal incentive grants, and $5 million from six other reimbursement programs. Cities and towns absorbed this $28.75 million reduction, even though it came five months into the fiscal year, sharing in the efforts to close the state’s estimated $540 million budget gap.

Some other action taken by the House included a freezing of the unemployment rates for business, avoiding a $500 million dollar hike. The January revenue figures came in above the budgetary benchmark by $173 million, an important number after the prior months numbers lagged badly, creating the shortfall that the Governor has sought to close. But that number may have been positively impacted by the fiscal cliff issue in Washington, with some economic activity moved up to avoid change in federal law, creating a blip in state revenues.

According to the Department of Revenue, tax collections in January totaled $2.28 billion, a 12.2 percent or $249 million increase over January 2012. The tax haul eclipsed the monthly benchmark by $173 million, with “weak” withholding and corporate and business tax collections offset by stronger estimated income tax payments, according to DOR. Tax collections over the first seven months of fiscal 2013 are up $455 million or 3.8 percent compared to the same period in fiscal 2012 and are running $307 million above a benchmark that was revised downward midyear by the Patrick administration as the governor made $225 million in unilateral budget cuts in December.

There were a number of Republican amendments beaten back, and some Democratic ones as well. On that score nobody should be overly concerned, as a supplemental of this importance essentially needs to be a “clean” bill. It will move over to the Senate for Tuesday action. The remarks of House Ways and Means Chair Brian Dempsey are below.

http://www.statehousenews.com/video/13-02-06dempsey/player-viral.swf

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Job Poaching Between States.Tax Incentives Gone Wild!

Posted on February 6, 2013 by billmanzi

There has been much talk on Beacon Hill about the existence of tax expenditures in the state budget, and the desire to get rid of some of the less productive ones. I have done one earlier post on tax expenditures, and they are considered to be so important that they now produce a “tax expenditure” budget at the State Level, which details these items in excruciating detail. One of the areas we are all familiar with is the utilization of tax incentives to attract business to a locality or a state, with that being one of the items that I consider to be a true “tax expenditure.” During my Administration as Mayor of Methuen we used tax incentives on a couple of occasions, after public vetting and discussion. There is a new report out, from the Washington based “Good Jobs First” organization that is highly critical of tax incentives given to lure existing business and jobs from state to state. I believe they make some pretty powerful arguments, and they provide detailed examples of what they consider to be wasteful expenditures by some states that use incentives to relocate business and jobs without creating any additional economic activity.

The report,titled “The Job Creation Shell Game“, attached below in pdf format, was covered in a story at Governing magazine. The Executive Director of Good Jobs First commented for the Governing story.

Greg LeRoy, the group’s executive director, said many incentive-laden deals aimed at out-of-state employers lead to little, if any, net job growth. “It’s not a winner for the state, it’s economically irresponsible and it shortchanges the companies that really matter,” he said.

The report itself indicts the process that has allowed corporations to shift locales to garner huge tax breaks without providing true economic benefit. From the report:

What states euphemistically call “business recruitment” is often nothing more than the pirating of jobs by one state from another. This piracy is bankrolled by property, sales and income tax breaks, land and infrastructure subsidies, low interest loans, “deal-closing” grants, and other subsidies to footloose companies.
For trophies such as corporate headquarters, some states even offer per-job cash grants to finance executive relocations.The dark flip side of subsidized job piracy is “job blackmail,” politely called “retention incentives.” With subsidies readily available to any company that creates the appearance of moving, states are more eager to pay companies to stay.

I believe the the study hits some important points, and makes several recommendations that are both pragmatic and achievable.

To cool these job wars, the report recommends that states demonetize interstate job fraud. That is, the states should stop subsidizing companies for existing jobs that are treated as “new” simply because their location has changed. The study reveals that the vast majority of states already know how to do this: four-fifths of the states already refuse to pay for intrastate job relocations. For at least one and sometimes most of their major incentive programs, 40 states disallow subsidies for existing jobs that are merely being moved within their own borders.The report also recommends that states end their business recruitment activities that are explicitly designed to pirate existing jobs from other states. It also suggests a modest role for the federal government: reserving a small portion of its economic development aid for those states that amend their incentive codes to make existing jobs ineligible for subsidies and certify that they no longer engage in raiding.

In terms of local and state incentives Massachusetts requires “new job growth” (for the state portion) in order to give a subsidy, and in my experience that definition is tight, and strictly adhered to. The locals have an ability to do some Tax Increment Financing, which would give some property tax relief on the “incremental” (increased) value of property owned by a “new” business entity after a development. Massachusetts policy on “job retention financing” for in state companies, or “job incentive financing” that may be offered to out of state companies, appears to be on sturdy ground as evidenced by the Curt Schilling case, which was cited in the study. But we have had our share of controversy in this area as well, including criticism of deals for Raytheon and Fidelity where job losses occurred in spite of lucrative tax deals bestowed. Senator Mark Montigny has been a strong advocate for evaluating these tax deals on a continuing basis, and revoking them where they are no longer effective, or the company is failing to fulfill their obligations.

Job poaching by giving away scarce tax dollars may make a politician look good in the short term, but the specific examples cited in the study absolutely warrant scrutiny. Corporations are indeed gaming inter (and intra) state relocations to extract tax dollars from states and localities, with negative impacts being felt nationwide.

The net effect of these piracy lures and blackmail payoffs is to divert economic development resources away from helping companies expand or start up, where virtually all the job-growth action is. And when many states are still making painful budget cuts, putting lots of eggs in a few corporate baskets reduces funding available for the low-risk, high-payoff investments in education and infrastructure that benefit all employers.

It is a great report, and while I realize that business incentives can be a powerful tool, I believe that the cross-border raids are not serving the needs of taxpayers or other businesses. The Good Jobs First folks have produced a report that should have both federal and state legislators asking some hard questions about the true value of many of these “business tax incentives”.

State Tax Incentives

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NRA Delusions on Background Checks

Posted on February 5, 2013 by billmanzi

NRA V.P. Wayne LaPierre appeared on Fox News Sunday with Chris Wallace, and despite his personal endorsement of background checks many years earlier LaPierre and the NRA have dug in hard against those background checks today.Chris Wallace grilled LaPierre on his many inconsistencies, and was simply incredulous at some of LaPierre’s answers. As the political battle begins in earnest over common sense regulations of firearms it appears that most everyone, including NRA members, are in favor of universal background checks. Most everyone except the NRA. I have a very difficult time understanding the opposition to background checks, as did Chris Wallace. LaPierre tries to sell some delusional “slippery slope” nonsense about a federal database on law abiding gun owners. Wallace cut through that like a knife through soft butter.

Despite the overwhelming support for background checks it is an open question as to whether a stand alone background check bill could get through the Republican House. In light of rank and file NRA support of such legislation you might be tempted to ask why that is the case? My answer is simple: follow the money. The NRA represents the gun industry, and background checks might just be bad for business. And the gun industry and the NRA are generous supporters of Republican House members. It is a shame that a single item, with huge popular support, cannot be enacted quickly. and it is truly indicative of the political problems facing the national Republican Party. It is not only the Republican “base” that is at issue, but more importantly it is the Republican donor class that is destroying the national Republican Party. Having Wayne LaPierre as the face of the national Republican brand certainly will not be helpful to that brand. This interview should tell you all you need to know about the NRA working constructively to help address obvious issues where consensus exists.

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What If They Had an Election and No (Republicans) Came

Posted on February 5, 2013 by billmanzi

The list of Massachusetts GOP luminaries heading for the exits as potential candidates for U.S. Senate seems to grow by the hour. We had Scott Brown, batting lead-off, shocking the Party (but not me) by announcing he would not run. He was followed, in no particular order, by former Lt. Governor Kerry Healey, former Governor Bill Weld, former State Senator Richard Tisei, Tagg Romney, and Charlie Baker.

The Republicans taking a pass must be thinking of the risk vs reward equation, with the lack of a full six year term, and the prospect of victory, followed by defeat in a year, all factored into that consideration. I happen to agree with their political calculation. This is a race best suited for a Republican who sees the reward of victory as a huge upside to his or her career. The two names that seem to correspond to that are State Rep. Dan Winslow, and Gabriel Gomez. Winslow will announce this morning, with a run looking very likely.

The Democratic side, for a day or so, entertained the possibility of a three way race, with Middlesex District Attorney Gerald Leone briefly contemplating a run. But at this point it is still a two man race between Ed Markey and Steve Lynch. The handicap on this race still favors Markey, who starts with a financial advantage, and an institutional advantage over Lynch. I make Markey a 3 to 1 favorite for those going to Las Vegas. Let us see how Lynch does from an operational point of view, including the collection of 10,000 signatures state wide. I have not seen evidence of much organization by Lynch in the Merrimack Valley, a potentially fertile ground for him. But there is time, just not much time.

My final observation is that the Democrat would be a heavy favorite in the final, but a Lynch-Winslow final would likely feature Winslow trying to get to the left rail against Lynch on social issues, and making his best efforts to flank Lynch with some key Democratic constituencies. But that race is a long way off, with no guarantee that Lynch or Winslow will be in the final.

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Increased Massachusetts Revenue: Where Is It Coming From?

Posted on February 2, 2013 by billmanzi

Governor Deval Patrick has unveiled a budget and tax plan that delivers just under $2 billion in new revenue to state coffers to fund transportation and educational initiatives. The Governor’s proposal does not simply rely on a straight increase in one category of tax, but has mixed in income tax rate increases, decreases in the sales tax, tax code changes, corporate tax changes, and increasing the sales tax base in order to achieve the $1.9 billion in new revenues. Michael Widmer of the Massachusetts Taxpayers Foundation said that the proposal had more moving parts than any similar proposal he had ever seen, and I believe he is right.

Widmer and the Foundation have come out with an analysis of the revenue proposal, showing exactly how each component of the proposal impacts state revenues. The numbers are a bit surprising. Let us take a look.

When you net out the income tax increase with the sales tax decrease you raise $110 million, which is only 6% of the overall total. ($1.48 billion increase in income tax, $1.37 billion decrease in sales tax). The real money comes from changes in personal income tax deductions that would be allowed under the Governor’s proposal. The 44 deductions and exemptions that would no longer be allowed bring just under $1.1 billion in new revenue. Expanding the sales tax to include candy and soda would bring in $53 million, and increasing tobacco and cigarette taxes would bring in $166 million. That is where the real money is, and will bring scrutiny to the tax code changes, and how they impact taxpayers. Those three items make up 68% of the new revenue, which is possibly the biggest surprise.

On the corporate side the Governor proposes to extend the sales tax to sales of specialized software and data services ($265 million), proposes three different technical changes to the corporate tax code ($194 million)and would limit the film tax credit to $40 million (increase of $40 million in revenue).Those changes are worth $499 million, or 26% of the increased revenue.

What are some of the deductions and exemptions that are impacted? The deduction for employee Social Security and Public Pension plans is one that will certainly draw some scrutiny. That change will impact 3.5 million filers in Massachusetts, and is worth $357 million at the 6.25% rate. Next up would be the capital gain for the sale of a home. Current Massachusetts law allows for exempting the first $500,000 of gain from the sale of a primary residence, a benefit that has been extended to all taxpayers. The Governor’s proposal would eliminate the benefit for all, and would impact 55,000 filers. A third prominent change would be the elimination of the deduction for child dependents. The Governor proposes to eliminate the deduction for dependents under the age of 12. 510,000 filers would be impacted by this change, worth $162 million at 6.25%. That change is going to draw heavy scrutiny.

The Governor and others point to these changes and others as part of an effort to restrain “tax expenditures”, which are tax code items that provide a benefit to a certain category of taxpayers that is not available to other taxpayers.From the State House News Service:

Patrick’s multi-faceted approach to overhauling the tax code generally meshes with calls for broad tax law reforms called for in recent years by Rep. Jay Kaufman (D-Lexington), who chaired the Committee on Revenue last session. House Speaker Robert DeLeo has yet to announce this session’s Revenue chair.

The state’s tax expenditure budget identifies hundreds of specific tax breaks, which the Tax Expenditure Commission, chaired by former Administration and Finance Secretary Jay Gonzalez, recommended reducing in a report issued last April 30.

“A reduction in size of the Tax Expenditure Budget provides the opportunity to reduce tax rates paid by everyone, or to generate more revenue to support government programs and services,” the commission wrote.

I did a post on “tax expenditures” last year, and would have to say that my understanding of the term would not include the changes to the tax code mentioned above that impact individual filers. In looking at the proposals I believe that the best example of the elimination of “tax expenditures” would be the limiting of the film tax credit, and the other corporate tax changes. I realize the broader definition includes all tax deductions and exemptions, including personal ones, but the political discussions on it have frankly been centered on the corporate side.

The Governor, through these proposals, also seeks to use the tax changes to make the code more progressive.

Glen Shor, the governor’s secretary of administration and finance, did not take issue with Widmer’s math, but said he looks at the proposal through a different prism. “The governor’s revenue proposals should be taken as a whole. It raises $1.9 billion by creating a fairer and simpler tax system. Half of Massachusetts households will pay the same or less than what they do today.”

New Secretary of A&F Glen Shor points out that business will save about $470 million from the sales tax reduction, which was not included in the Widmer analysis. But as usual Widmer’s numbers are a good tool for taxpayers and legislators alike as they look at the scope of the Governor’s proposals, and what the specific impacts are. The Governor has not just produced a cookie cutter approach to revenues, but instead has laid out a proposal with many “moving parts.” The Legislature has some heavy lifting ahead.

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Steve Lynch Kicks Off

Posted on January 31, 2013 by billmanzi

Rep. Steve Lynch will kick off his campaign today, traveling to Springfield, Worcester, and ending in South Boston at Iron Workers Hall. He has a Facebook Page, and a new video highlighting his working class roots. I have attached that video below. As I mentioned yesterday Lynch will not be sitting down and waiting for votes to come to him. He will be street side early in the morning, and late at night. Here we go.

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