Gov. Patrick calls for income tax hike
BOSTON (AP) -- Gov. Deval Patrick asked the Legislature on Wednesday for a net increase of $1.9 billion in state taxes -- boosting the income tax while lowering sales taxes -- to support major new spending on transportation and education.
Patrick used his annual state of the state address to propose hiking the state income tax from 5.25 percent to 6.25 percent, while doubling the personal exemption for all taxpayers and eliminating dozens of itemized deductions. At the same time, he called for reducing the state sales tax from the current 6.25 percent to 4.5 percent.
The governor said the changes would make the state's tax code fairer, because the sales tax is generally considered more regressive than the income tax. He also said the changes would keep Massachusetts competitive with most neighboring states.
"There is no good time to raise taxes. I know how tough times have been on the people and families of the Commonwealth," Patrick said, as the House chamber fell silent.
"I would not ask if I did not believe in my heart that investing meaningfully today in education and transportation will significantly improve our economic tomorrows. But because we all have a stake in that future, we should all contribute to paying for it."
Administration officials said the income tax changes would raise $2.8 billion in the next fiscal year starting July 1, while closing some business tax loopholes -- also part of the plan -- would bring in $194 million. The increases would be partially offset by the $1.1 billion reduction in the sales tax.
The meals tax, paid by restaurant diners, would also fall to 4.5 percent.
Under his plan, Patrick said the income tax hike would go to support education initiatives, while in the future all proceeds from the sales tax would go to a public works fund that will support transportation, school construction and other public infrastructure. Sales tax proceeds would be off limits to any other state programs.
Currently, 20 percent of sales tax proceeds are dedicated to public transit.
Earlier this week, Patrick had outlined an ambitious plan to expand access to education for students from birth through college and received a report from the state transportation department that called for $1 billion more in annual funding to meet the needs of a chronically underfunded system burdened with debt from the Big Dig and other projects.
Legislative leaders were cautious in their response to the speech, saying the tax and spending plans would require extensive review by lawmakers.
Senate President Therese Murray applauded Patrick on his education and transportation initiatives while adding, "the devil's in the details." She said she had not been briefed in advance on the tax proposals.
House Speaker Robert Deleo said Patrick "has given us a lot of food for thought."
Republicans, who are heavily outnumbered by Democrats in both branches, blasted what they called an "economically devastating" proposal to raise taxes.
"This is about taxpayers funding the Deval Patrick legacy project and quite frankly I don't think the taxpayers want to or can afford to," said Rep. Brad Jones, the House minority leader.
The state's current income tax rate ranks 30th highest among states that levy an income tax, according to the most recent analysis by the Washington-based Tax Foundation. Massachusetts also ranks around the national average in taxes as a percentage of personal income, though because it is a wealthier state it has one of the higher average per-capita income tax payments.
"Clearly the changes make the state's tax system more progressive, but it is a large increase to impose on those who make the decisions whether to invest in Massachusetts, especially in a fragile economic environment," said Michael Widmer, president of the business-backed Massachusetts Taxpayers Foundation.
Patrick, a Democrat who has ruled out seeking a third term in 2014, said he encouraged debate over his tax proposals, "But this time, instead of sinking in the same old slogans, let's have a serious, fact-based debate," he said.