Goodbye "Taxachusetts"

I know what you all must be thinking, Massachusetts and tax cuts? You thought those words could not possibly be mentioned in the same breath, but that was a decade ago. Believe it or not, in the last nine years in Massachusetts we've cut taxes 38 times. It hasn't been easy.

Bill Weld and I, and now Lieutenant Governor Jane Swift and I, have managed to push the legislature--in which Democrats now outnumber Republicans about 6 to 1--to cut taxes and to recognize their importance for continued growth and prosperity.

When Bill Weld and I came into office in 1991, the words "cutting taxes" were not part of the legislature's vocabulary. Massachusetts was better known as "Taxachusetts." The state, like the nation, was in a deep recession, but in Massachusetts that recession got even deeper because in the late 1980s the legislature tried to tax and spend its way out of a fiscal crisis. We had, in 1991, the highest unemployment rate in America. Our bond rating was ranked dead last among the states, just one notch above junk bond status.

The people of Massachusetts were fed up with having the state's budget books balanced on their backs, and businesses were frustrated with a tax code that discouraged new investment. All of those things led to a strong appetite in Massachusetts for tax cuts.

So, we rolled up our sleeves and sent tax after tax onto the chopping block. We repealed the sales tax on services. We eliminated the tax on long-term capital gains. We put in place one of the most generous research-and-development tax credits in the country. We eliminated the tax on Internet access and in the summer of 1998 passed $1 billion in tax cuts.

That was the largest tax cut in our state's history. It included reducing the tax on unearned income from 12 percent to 5.95 percent, which is the tax on earned income. We worked cooperatively with the legislature to pass these 38 tax cuts which are pumping nearly $3 billion into our economy each and every year.

During this time, we changed the debate on Beacon Hill. Even liberal Democrats were touting their own tax cut packages. In Massachusetts, that's when you know things have changed. Democrats could no longer ignore the obvious. Tax cuts were doing wonders for our economy. They are continuing to benefit our state. Today, we have a thriving high-technology industry. We've created 450,000 new jobs, and we have the lowest unemployment rate of the big industrial states at 3.1 percent. We have also just had our bond rating upgraded for the fourth time in eight years by Moody's Financial Services.

Targeting the Income Tax

Despite each and every one of those 38 tax cuts, Jane Swift and I believe we must continue to reduce the burden on taxpayers. We want to provide permanent, significant tax relief for the people of our state in the form of a major cut in the state income tax.

Despite the overwhelming evidence of support for this tax cut, the legislature, however, seems to think we don't need it. We know we're on the right side of this debate. Despite our efforts in cutting taxes, lowering unemployment insurance rates by more than a billion dollars, cutting worker's compensation rates in half, restructuring the electric industry, getting reductions in electric rates, and eliminating needless regulations, Massachusetts remains a high-cost state, particularly in the area of taxes. We have the highest personal income taxes of any industrial state. We are the fifth most heavily taxed state in the nation. And local, state, and federal taxes consume a larger share of a Massachusetts family's budget than almost anywhere in our country.

During the tax-and-spending spree in the late `80s that I mentioned earlier, one particular tax was hit, the income tax. In 1989 it was raised from 5 to 5.95 percent. Yet at the time, Governor Dukakis and the lawmakers promised that the increase would be temporary, and it would be returned to its previous level once good economic times returned. Today, 11 years later, despite our clamoring for the tax cut, the legislature has refused to lower the rate to 5 percent. And the good times don't get much better than what we are enjoying today in Massachusetts.

By conservative estimates, we are three years removed from the troubles. That's when our fiscal recovery bonds, which were issued to pull Massachusetts from its economic morass in the late `80s were finally retired.

On the issue of keeping a promise, the legislature has turned a deaf ear to us and to the people of Massachusetts. They seem to believe that our tax cutting days are over. They did offer meager tax cuts in the last budget to try and quell the clamor for our tax cut, but they weren't nearly enough. They cut the income tax from 5.95 percent to 5.75 percent over a 3-year period. Our proposal is to go from 5.95 to 5.6 to 5.3 to 5.0 over 3 years, while the legislature would rather spend more of the taxpayers' money to bloat the state budget. They appear destined to repeat the mistakes of the past.

But, I'm not willing to let fiscal calamity be Massachusetts' destiny. I want to take Massachusetts forward and protect our economy against bad times. The way to do that, I believe, is by cutting the income tax to 5 percent. I believe it will secure our economic future.

For years, I have argued for this tax cut, but I think I reached the point of no return last spring when the Taxation Committee, a joint committee, House and Senate, was hearing testimony on tax bills, and they left mine off the calendar. The hearing was actually the day before April Fool's Day, but I know the omission was no joke. I've never been one to crash the party, but I did crash that hearing, and I know the chairpersons of the Taxation Committee, Democratic legislators, were not too happy to see me there.

But as is the tradition at legislative hearings, the governor gets to speak first, and I did speak first, and I did not testify on the bills that were before the committee. I spoke on behalf of the bill that Lieutenant Governor Swift and I had filed to roll the income tax back to 5 percent.

Let the People Decide

After those shenanigans, I made up my mind to take this issue to a different audience, the audience that matters most, the people of Massachusetts. I decided that if the legislature won't cut our taxes, we'll do it ourselves. Last summer Jane Swift and I led a petition drive to get an income tax rollback referendum on the ballot this coming November. We collected nearly 150,000 signatures, and now we are assured that the people will have this opportunity to directly weigh in on an issue that affects their daily lives. I believe that the referendum will pass.

Despite Massachusetts' reputation as a liberal state, there is an inherent conservatism in voters who want to prevent government from engaging in a feeding frenzy with their money. In the early 1980s voters approved what we called Proposition Two and a Half, which limits the ability of cities and towns to increase local taxes. I think people at the national level should take notice of our ballot initiative and our past success in cutting taxes. After all, if you can cut taxes in Massachusetts, you can do it just about anywhere.

If Massachusetts passes a major income tax cut overwhelmingly, I think it will be an excellent indicator that people who say there is no support for tax cuts are out of touch.

The debate about the size of the federal income tax cut probably won't be settled by November. If we are successful in our ballot initiative, I think it will be a catalyst for the continuing debate in 2001. It has been my experience that the people in my state do want lower taxes, and if they want a tax cut in my state, I can tell you they want one across this nation.

Can We Afford It?

Opponents of my tax cut proposal are already out in full force trying to convince the citizens of Massachusetts that it is not affordable. They claim you can't cut taxes and fund the necessary programs for children and families. It's the old "if we don't raise taxes people will die in the streets" argument. They're wrong, and we've proven them wrong.

During the times we've cut taxes 38 times, we've increased spending on education seven years in a row, and today we are spending $3.8 billion on state aid to local school districts. That's more than double what we were spending eight years ago, which was around $1.5 billion.

I might add that in addition to providing the money for our schools, we have required accountability. We've put in place standards, and we're testing our students because we want to make sure that our kids are meeting those standards. So, it's not just the money; it's the accountability that goes with it.

We've also delivered a record number of local aid payments to cities and towns and expanded our state's Medicaid program to reduce the number of people uninsured, particularly children, and we've made great progress in Massachusetts in taking our uninsured population from over 700,000 to well below 500,000 citizens over the last several years.

Furthermore, Massachusetts is flush with more than $4 billion in reserve accounts. We have $1.4 billion in the rainy day fund. This fund had a zero balance back in 1991. We have $1.8 billion in the unemployment insurance trust fund. And, in a study sponsored by the Center on Budget and Policy Priorities, a liberal Washington think tank, Massachusetts was named one of only eight states that could sustain a national economic downturn without raising taxes or reducing state services.

Those who are asking if can we afford this tax cut are looking at the issue from the wrong end of the telescope. The real question should be: Can the taxpayers afford to have us continue to go the way we are, Can our economy continue to grow without again reducing the cost of doing business? After all, taxpayer money is not the government's money, it is the people's money. We can't, nor should we, ask people to work any harder to pay for the growth of government; there aren't any more hours left in the day. Instead, we have to put on the brakes.

Who Will Benefit?

Our income tax rate is tough on families. Child care, college tuitions, and groceries squeeze every last dime out of a family's pocketbook. Taxes only add to that burden. Our income tax cut will save the average family of four $600 per year. That's money that will buy clothes for the kids or help with the mortgage payments. The people of Massachusetts should not have to continue to pay for the fiscal mismanagement of a decade ago. They deserve to be beneficiaries of good economic times.

Most important, this tax cut is necessary to prolong our economic prosperity. High taxes drain money from our economy. While Massachusetts' fiscal situation is solid, there are still regions in our state that have not realized their full potential. These regions need investment and lower taxes to stimulate economic growth.

Lower taxes are a significant factor in business location decisions. Right now we have the second-highest effective income tax rate in the nation. Because of that, Massachusetts is operating with one hand tied behind its back. We are competing with neighborhood rivals like New Hampshire and high-tech competitors like Texas, which have no income tax.

Cutting the income tax would allow us to move from fifth to tenth in the rankings of most heavily taxed states. It would allow us to leapfrog Michigan and California and put us neck and neck with New York, three direct competitors for jobs in high-tech and financial services industries. It would make us more competitive in the global economy of the new century.

Contrary to popular belief, the income tax cuts have not proven to decrease revenue. In fact, the most important factor in maintaining revenue increases is the scale of the economy. We've seen tax cuts stimulate growth statewide in Massachusetts.

Slashing the personal income tax is the best way to facilitate business growth and recirculate $1.4 billion a year to our commercial markets. It will help build businesses in the areas that were hit hardest during the last recession, and it will create jobs and opportunity across our state.

The Beacon Hill Institute for Public Policy Research, which I know is working with The Heritage Foundation to combine resources to evaluate state tax policies, has estimated that when our tax cut is fully implemented it will help create nearly 100,000 jobs and swell payrolls by over $4 billion. It is clear that the price of our tax cut is small in comparison to the potential rewards.

Reining in Government

The tax cut is also critical to keep government spending under control. We have to take revenue off the table, or else our legislature will inevitably find ways to spend it. Government is not better suited to handle people's money. It is money we'd rather have citizens investing in our economy and using to raise their families.

The notion that government is entitled to this taxpayer money is exactly the kind of mentality that legislators use to justify their spendthrift ways. It was a spending bonanza that led to the last terrible fiscal crisis Massachusetts endured. It led to raising the income tax in the first place. That tax hike was supposed to be temporary. I know because I was in the state senate at the time fighting tooth and nail against it. Eleven years is not my idea, or anyone's idea, of temporary.

Honoring the Promise

The legislature would like everyone in my state to forget about its promise, and some lawmakers are even trying to say that the promise was never made. Unfortunately, in Massachusetts the legislature is perpetuating the public perception that politicians can't make good on a promise. It is important for taxpayers and the business community to believe what the people they elect tell them. But in Massachusetts the time has passed for the legislature to earn back that trust.

Getting this issue on the ballot is a different way to prove to our citizens that government can work, and that it does understand the burdens of working families. I don't expect the legislature will jump on board and keep its promise on the Cellucci-Swift tax cut before November, but I do believe we will beat them at the ballot box and cut our own taxes.

Cutting the income tax is about principle, promise, and prolonging the prosperity. It's about doing what's right for our economy and for our families. Massachusetts has come a long way in the last several years. It's happened with a Republican in the corner office working with a Democrat-controlled legislature. As I said earlier, we have worked cooperatively before, and I know we will continue to work together on many issues. But refreshingly, in the first national election of the new millennium, the people themselves will decide this important issue.

It won't be about the legislature or the governor. The people will decide what to do with their money. I believe they will endorse the income tax cut overwhelmingly and keep our state on course for prosperity in the 21st century.