BHI Weekly Dispatch: Translating the scheduled state income tax cut into jobs

Some tax cuts arrive later than others. And it might still be that Massachusetts voters will never see their 5% state personal income tax (PIT) rate restored in the manner they collectively approved at the ballot box in 2000. But a tiny cut is better than none at all and a promise is a promise.

In opting for more tax revenue in 2002, the legislature sought — after freezing the rate at 5.30% —  to soften its grabbing hand by adding language that would modestly cut the PIT by increments if the stars were to align in proper fashion. That is to say if revenue collections were consistently high enough to meet certain and previously unattainable thresholds  a tax cut of 0.05% could be enacted. That time for a 5.25% rate (with all the velocity of a rounding error) has arrived and with it the strange new talking points that have Senate President Therese Murray sounding like a supply-sider — well almost by Massachusetts standards. “It’s a good sign for our economy,” Murray, a Democrat, said according to the Boston Globe. “We put those benchmarks in place many years ago, and we’re keeping our commitment. . . . Now we need to make sure we keep this recovery going.”

Here’s what might be part of the recovery picture. The new jobs emerging as a result of the tax cut are certainly less than a full-throttled cut to 5% but job growth of any kind is welcome in this uncertain economy.

According to the Beacon Hill Institute’s State Tax Analysis Modeling Program (STAMP), the tax cut should create 1,057 private sector jobs and reduce state revenue by $98.98 million while knocking off 272 public sector jobs. The effect on investment is rather small: $45 million but that’s because hiring labor will be more attractive than investing in capital.

Nonetheless the tax cut is a holiday gift. Enjoy it while you can. Holidays come and go but the sight of a tax-cutting Massachusetts legislature is rare.

From all of us at the Beacon Hill Institute, Merry Christmas and Happy New Year.

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About Beacon Hill Institute

The Beacon Hill Institute engages in rigorous economic research and conducts educational programs for the purpose of producing and disseminating readable analyses of current public policy issues to voters, taxpayers, opinion leaders and policy makers.