House Debate on Proposed FY 1999 Budget / Tax Cuts

Massachusetts House of Representatives - May 6, 1998

On Wednesday, May 6th, the House debated the tax cut portion of the proposed state budget for fiscal year 1999.  Excuses for yet again breaking their promise to taxpayers came easily.

The House debate, excerpted from the State House News Service report, follows:

SHNS...May. 6, 1998...The House convened at 10:01 am with Speaker Thomas Finneran of Mattapan presiding. The prayer was offered by House Chaplain Robert Quinn.

Rep. Peters said the minority party is interested in moving forward on this budget and having some reasonable limits placed on this debate. But this amendment is substantive. It is an income tax cut amendment. It would substitute the tax cut proposal in this budget for a reduction in the income tax from 5.95 to 5 percent. It is an important amendment today, particularly important because the question now rests with the legislature. There was an initiative petition that was supposed to have been on the ballot this fall. Voters were supposed to decide whether the temporary income tax should be repealed, whether the people would see an average of $600 savings. We’ve got a $19.4 billion budget. We’re told by House leadership that there’s approximately $500 million held in reserve for tax cuts. The minority party has offered a number of amendments on capital gains and so forth. This amendment simply deals with earned income. The revenue impact of this amendment is $206 million. And once again, leadership says it has allocated $500 million for a tax cut. This amendment is important for a number of reasons. The state doesn’t need this revenue any more. The tax was raised to pay off bonds, and those bonds have been paid off, and the money should be used to help the men and women who get up every morning and work and are entitled to their fair share. This costs less than the tax cut proposal contained in your budget. In January of 1998, retroactively, the tax rate will go to 5.75 percent. In 1999, it goes to 5.5 percent. In 2000 it goes to 5.3 percent. In 2001, 5.0 percent. It’s a reasonable amendment. As legislators, it allows us to keep our promise. We have a surplus. We have a surplus because we are taxing our people too much. We have a surplus because the tax was used as a dedicated revenue source to pay for those bonds. Those of you who come in here every day, I don’t know if you walk around with $600 in your pockets. But in my opinion, $600 is a lot of money. If you vote for this amendment, you will be voting for a phase-out of the temporary tax. If you vote for this amendment, by 2001, the income tax will be at 5.0 percent.

Rep. Peters continued: If you vote for this amendment, you’ll be keeping a commitment. It’s timely, it’s important. Someone came up to me today and said, "We’ve voted on this before." But today is different. There will not be a question on the ballot. The people you represent will not be able to vote to repeal the tax. And if we don’t vote to repeal it, who will? The answer is: no one. Not only is it right for working families, and fiscally responsible for the state, it is the right thing to do. It is the honest thing to do. This is the only vote that the people of Massachusetts will have on this issue.

Rep. Larkin said I hope this amendment is not adopted. We voted on this on March 11. We voted against it, 119-34. At the time, we adopted a taxpayer relief plan, which we passed by 152-0. As I look at the list, it is hard to find a member of the minority party that didn’t support it. We reduced the rate on earned income to 5.7 percent. And we readdressed the capital gains tax, making a flat rate of 5.7 percent, making exceptions for the sale of a home. We also agreed to double the dependent deduction and allowed it to be applied for kids up to age 18. Our tax plan is also retroactive. Just to be a little bit particular, ours goes to 5.7 percent this year, while the minority party’s plan cuts it only to 5.75 the first year. As we took up the tax plan in March, the leadership said that it was important to put this in the budget, to reconfirm what we did on March 11. Proposals have been put forth to reduce state revenues by large amounts, from $1.3 billion, which is here today, to up to $2 billion. We rejected those on March 11. We’re taking a prudent course. We’re recognizing that taxpayers deserve a break and we’re doing it in a prudent way. We’ve already taken this vote. I hope the amendment does not pass.

Rep. Gauch said I think we’re talking about more than a tax cut. We’re talking about our credibility as a body. Years ago, we said that when things got better, we’d go back to 5 percent. That was a promise we made and we haven’t kept it. Things aren’t going to get any better than this. It looks like we’re going to have an $800 million surplus. I sent a survey out to the 37,000 in my district. Eighty-two percent of them said let’s honor the commitment and bring it down to 5 percent. We also, in that survey, asked what the most important issue was for those people out in Shrewsbury. Education was number one, but tax cuts were number two. You can either grow the beast of state government and make it bigger and bigger, or you can return it to the hardworking men and women of the Commonwealth. I would hope we could listen to the people we represent. Tax policy is only good when it is simple. And this is the simplest way we can return this money to the men and women of the commonwealth. I hope it is approved.

Rep. Slattery said I hope the amendment is not adopted. It seems to me that we just had this debate and that these same arguments were made. The gentleman from ways and means said, as clearly as can be said, that he knew that his friends in the minority party were not serious about opposing the $500 million tax cut. You want to talk about credibility, then we need to start with ourselves in this House at this time. I have never seen anything to show that the 5.95 rate was a temporary tax hike. Nobody, nobody can establish that there was ever a temporary tax.

Rep. Slattery continued: We just undertook one of the most comprehensive tax cuts in the history of the commonwealth. That was a $500 million cut. Now you’re saying that notwithstanding that, you want to cut more. But there are other services that people need: fire departments, education. Where are we going to get money for the people in the nursing homes? We’re responsible for a lot of people in this commonwealth. Cities and towns are screaming for more education money. How many of our debates concern education? If we continue to cut taxes, and go even farther, we’re not going to have money for education. You’re going to have to explain to special-needs parents why they can no longer have the services that we’ve always provided. You’re going to have to explain to them why you’re cutting their local budgets.

Rep. Frost said I rise in favor of the amendment. I stood up here also a few months ago when we discussed the tax relief plan. I said then that even though there were problems, that we would support the tax cut. That’s why it was 152 to nothing. I’m proud about many of the things in the plan. And I’m glad we did it. But we didn’t go far enough. We didn’t go to 5 percent, like we promised. When the signatures were rejected yesterday, some people were very happy. They didn’t want this to go to the voters. It was a good referendum. It was a good referendum and it would allow them to decide whether their taxes should be lowered. We must give this to them. We’ve got to give them the 5 percent because they need the money. But when the bad times arrive, as they eventually will, if we lower taxes now we won’t face a big dip when the stock market crashes. Because more people will have more money to spend. I hope this amendment passes.

Rep. Frost moved for a roll call and there was support.

Rep. Demakis said I hope the amendment is not adopted. I have taken the microphone on a number of occasions in the past, to chastise my friends in the minority party for constantly offering tax cuts that are irresponsible in scope in order to pander to the voters. And there are many things that I have been troubled by in this constant effort of theirs to make it look like they’re the real friends of the taxpayers and we’re not. But the thing that galls me the most is that not only do they support every tax cut that comes down the pike, they support every spending increase that comes down the pike too. They support spending increases that, if they did not occur, would give us money to cut those taxes. Let me offer a couple of examples. I recall the budget debate two years ago. We had two votes on appropriations in that entire debate. One of them had to do with payments in lieu of taxes and the other was about increasing minimum aid to school districts. On both those votes, a majority of Democrats voted against the spending increases and a majority of Republicans voted for them. I’ve been looking at this budget and just at a glance, I counted 40 amendments sponsored by Republicans that would create new line items or add to line items. The ranking GOP member of Ways and Means wants to add $40,000 to the Division of Fisheries and Wildlife. The same member wants to add a new line item, of $118,000 to a neighborhood crime watch. My favorite was amendment #186, to appropriate $5 million for a new garage in the city of Westfield, offered by the lady from Westfield. $5 million.

Rep. Cresta rose and asked but the amendments that are adopted, are those offered by Republicans or Democrats? (laughter)

Rep. Demakis said my point is, I got a call from a conservative constituent of mine a few weeks ago, when we approved the tax package. And he said, I bet there’s four or five billion of fat that I could cut out of the budget. And so I said, well why don’t the Republicans that you support identify that four or five billion? They can’t even identify four or five thousand. As to the $800 million surplus, in fact, tax revenues were down from last year. And the Secretary of A&F is anticipating a surplus of $600 million, although it could be less than that. The last time I checked, $600 million minus $1.3 billion leaves a big negative number. So I don’t see how the surplus justifies your tax cut. You must have failed 5^th grade math. You wouldn’t do so well on the MCAS. Let’s take things a step at the time and stop this constant game of pandering to the voters.

Rep. Gauch rose and said I sent out a survey and my constituents said they want 5 percent. Is that pandering?

Rep. Demakis said yes. That is my point. Everyone wants tax cuts, but they also want good schools, good health care, a clean environment and a lot of other things that cost tax dollars. We can’t do everything. The challenge is for us to find the right balance. I think the budget before us finds that balance. It’s the biggest tax cut in history and anything more is irresponsible.

Rep. Marini said it sounds like for my friend from Boston, if I understood what he was saying – and heaven knows I tried – it’s the Republicans who keep spending and keep voting against tax cuts. Give me a break. Why don’t we just tell the truth. The last time there was a Democrat in the Corner Office he spent the state into virtual bankruptcy and we had to raise taxes to get out of it. When we did, we told people that it was just until we recovered our fiscal stability. Next year, it will cost us less than the speaker’s proposal. It’s not that we don’t have the money. There’s no shortage of good things to do with someone else’s money. All we’re saying is, let’s do what we said we would do and let the people keep a little bit more of their own money. That’s all. It’s as simple as that. The fact that Republicans participate in the budget process, and may even seek line item increases, is besides the point. We have the money to do the tax cut, if we want to, but you don’t want to. Now why don’t you have the guts to look at the camera and say, Yeah, we could cut the tax, but we don’t want to because we know better than you what to do with your money. But politically, that’s difficult to do. There was a collective sigh of relief throughout the building when the judge decided the tax cut petition couldn’t get on the ballot. Every one of us knows that if we let the people decide, the people would decide that the right tax rate is 5 percent. But thank god we’re not going to pander to the people by letting them decide. Thank god the judiciary has bailed us out once again.

BY ROLL CALL VOTE OF 34-118, AMENDMENT NOT ADOPTED.

Rep. Marzilli said I want to thank Rep. DeFilippi for bringing up this issue. Personally, I believe we should cut the tax on dividend income. I think it is unfair to tax people based on the source of their income. I’d much rather do it based on the amount of their income. But in this budget debate, we’re debating our priorities deciding, where, as a society, we want to put our tax dollars. But I think the gentleman has it wrong. If we cut taxes blindly, based on a philosophy that does not examine our spending needs, we will be making a mistake. Just last week, I was at an organization that helps the elderly remain in their homes. They do God’s work, and they also save us money. Every time a senior stays out of a nursing home, we’re saving money. We don’t want to cut the home care that allows them to stay in their homes. We’re not going to be able to provide those services if we start cutting here and there. This House took a responsible move in March when we cut taxes to 5.75 percent.

Rep. Marzilli continued: It is wrong to tax income at different rates based upon the source, but this amendment is not geared to those people who are living off their dividends. It’s geared towards people making huge amounts of money who don’t want to pay taxes on their capital gains. I hope it is rejected.

Rep. Gauch said this is one of the most inequitable taxes we have in the state. We are one of the few states with a two-tier system. We encourage people to save and invest and then we whack them with 12 percent. We’re actually encouraging people to live, work and raise a family here and then move out of state when they retire. And that’s why a lot of people move to Florida. Why is it fair to charge 5.95 for earned income and 12 percent for unearned income?

Rep. McManus said over the last six or so years, we have seen this House act in an extremely fiscally prudent manner. We’ve enacted 22 tax cuts. We’ve seen our bond ratings go up. Wall Street is in love with what we’ve done. We’ve really recovered from the chaos of the late 1980s. But the fiscally smart thing to do is move cautiously and slowly and cut taxes on an annual basis. A couple of weeks ago we passed a bill lowering the unearned tax to 5.7, the same rate as the earned income. That is the fiscally prudent move we took as a body. I hope and believe that we will be back here next year, cutting taxes on both earned and unearned income again. And again the year after. And if we keep moving forward in a fiscally prudent way, we could get both taxes down to 5 percent. Maybe we could even get them below 5 percent. But to, in one fell swoop, take such a chunk out of the tax base, reminds me of what occurred in the 1980s. Everyone was so optimistic and wanted to cut taxes and increase spending. We all support the same goals. We all want to lower the unearned rate, and the earned rate. I’m just suggesting that perhaps we slow down. We’ll be back here again to reduce it further, hopefully next year.

BY ROLL CALL VOTE OF 35-118 AMENDMENT REJECTED.

BY ROLL CALL VOTE OF 27-128 AMENDMENT REJECTED.