In The News: Revenue

After examining the nine states without income taxes, the Massachusetts Taxpayers Foundation concluded that Massachusetts would have been forced to raise sales and property taxes, shifting the tax burden from higher earners to middle- to lower-income earners. "Plain and simple, the nine states without the income tax turn to other taxes, primarily the sales and property tax," said foundation president Michael Widmer.

Michael Widmer, president of the non-partisan Massachusetts Taxpayers Foundation, said that sales tax holidays give the impression of jumpstarting the economy while actually costing the state valuable revenue. He said the proposal is especially risky this year with the state facing a projected deficit of about $1 billion. "They're politically popular because they give the illusion of doing something to help the economy," he said. "When citizens are feeling pressure from escalating food and energy costs, which the Legislature can't really control, this is something they can do."

In the face of Patrick's own warnings, legislators this week are expected to take up a variety of spending bills, including a $3 billion capital facility bond bill and a $1.6 billion environmental bond bill. A $3 billion bridge repair bill is also pending, along with the $2.3 billion turnpike bailout, which Widmer called "the most fiscally risky proposal being given consideration by the Legislature during my 16 years as head of the Taxpayers Foundation."

"The current level of spending is unsustainable, and there is no plan to deal with the economic and fiscal challenges ahead," according to a budget warning sent out by the taxpayers foundation.

One of the biggest threats to the state's financial stability is a potential drop in the capital gains tax revenue, said Michael Widmer, president of the taxpayers group.

Projected capital gains revenue accounts for roughly $1.7 billion in the proposed state budget. But capital gains revenue, high when Wall Street is surging, typically dries up during a downturn.

Capital gains tax revenue, for example, plunged 75 percent in 2001 during the previous recession.

While Widmer is not predicting another 75 percent plunge, even a drop of 25 percent would wipe out $400 million in projected revenue, he said.

The Massachusetts Taxpayers Foundation wants Gov. Deval Patrick and State Legislators to cut hundreds of millions of dollars from the recently approved fiscal 2009 state budget to avoid what it said will be "an enormous threat" to state finances.

In an analysis released on Thursday, the MTF said it was worried the shortfall would affect Medicaid and ongoing efforts to expand health insurance coverage under the state's new law mandating coverage.

"It's a very risky budget," said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, a business-funded budget watchdog group. "This is certainly the time when we should be limiting state spending to the absolute most essential items. It's one thing to add projects during a boom time. It's quite another when we're in fiscal peril."

But Michael Widmer of the Massachusetts Taxpayers Foundation estimated the budget already is $1 billion out of balance and urged Patrick to freely wield his veto pen.

Besides the $310 million spending from reserves, plus about $90 million in lost interest, Widmer said lawmakers underfunded major accounts, such as health care and snow and ice removal, by $400 million. He also said lawmakers overestimated business tax revenues by about $100 million and failed to account for a $100 million film tax credit.

"I think (lawmakers) are just hoping for the best, but I think it's a very risky course," Widmer said.

"While it appears the state will close out fiscal 2008 this month in fairly good financial shape, the Massachusetts Taxpayers Foundation is warning that the 2009 state budget could deplete nearly half the commonwealth's reserves, taking a $2.1 billion fund balance to just $1.2 billion."

"'It would be wise for the three leaders to take a new look at the revenues . . . given that we're now apparently in a recession,' said Michael Widmer, president of the Massachusetts Taxpayers Foundation, which is studying whether that forecast is still accurate."