Six years ago, a barely regarded ballot question to abolish the state income tax nearly passed, shocking the state's political establishment.
The income tax question is back on the ballot this fall, but this time, it isn't sneaking up on anyone.
Comparative tax burdens
Local taxes in Massachusetts make up 39 percent of the tax burden, a figure that's less than most states that don't have an income tax.
- Alaska - The oil industry accounts for more than 80 percent of state tax revenue, including severance taxes and corporate income taxes on petroleum. Local taxes are 24 percent of total revenue.
- Florida - Florida has a 6 percent sales tax, and collects five times more than Massachusetts in sales tax revenue with three times the population, because of tourism. Local revenues make up 57 percent of the state's total tax burden.
- Nevada - The state has a 6.5 percent sales tax rate, and gets 17 percent of its revenue directly from gaming. Local taxes make up 50 percent of the burden.
- New Hampshire - The state has no income or sales tax, but has one of the nation's highest property tax burdens, based on several measurements. New Hampshire's median home property tax - $4,390 - ranked second in the nation in 2007, according to The Tax Foundation. By percentage of home value, it was fourth in the nation. Local taxes are 47 percent of the tax burden.
- South Dakota - This state has the lowest tax levy in the nation. But adjusted for population, it collects twice as much in sales taxes as Massachusetts. Local taxes are 46 percent of the burden.
- Tennessee - Local taxes account for 56 percent of all revenue. The state has a sales tax of 5.5 percent on food and 7 percent on merchandise, clothing, and services, including software, amusements and repairs. Local taxes are 56 percent of its tax burden.
- Texas - The state has a sales tax rate of 6.25 percent. Local revenue makes up 55 percent of all taxes. Gas and oil taxes raised nearly $3 billion in 2007. Local taxes are 55 percent of the tax burden.
- Washington - The state has a sales tax rate of 6.5 percent, and taxes on services like insurance, construction, software, security and amusements. Washington ranks first in sales tax burden, collecting roughly double what Massachusetts does with a similar population. Local taxes are 49 percent of the tax burden.
- Wyoming - With the smallest population of any state, Wyoming gets 40 percent of its revenue from severance taxes on minerals and 40 percent from general and selective sales taxes. Local taxes are 44 percent of the burden.
Sources: Analysis of U.S. Census data by The Massachusetts Taxpayers Foundation and The Tax Foundation.
Question 1 would abolish the state's 5.3 percent income tax, taking away $12.5 billion, or nearly 40 percent of the $28.2 billion budget that Gov. Deval Patrick signed in July.
The income tax would be cut by 50 percent in 2009 and eliminated in 2010. It would save the average taxpayer $3,700 when fully in place.
Labor unions are pouring millions of dollars into an effort to defeat Question 1. The state's business community is saying it would be a disaster. Statehouse leaders are warning of severe budget cuts if it passes.
Dispute over budget figure
Question 1 supporter Carla Howell argues that state spending is actually $47.3 billion, counting an ever growing number of "off budget" accounts like the MBTA, the Massachusetts Turnpike Authority and School Building Assistance.
Howell, who was the long-shot Libertarian Party candidate for governor in 2002, said $12.5 billion can be cut from the budget by targeting waste that is "marbled" throughout the state budget. She said schools and other local services don't have to be touched, calling them a "very small percentage" of the overall amount.
"It really is all about government waste," Howell said.
The business-backed Massachusetts Taxpayers Foundation, which opposes Question 1, said total state spending, including off-budget accounts, is $32 billion. Howell cites a figure in a state report, but the foundation says she is double counting some accounts, among other errors.
Michael Widmer, president of the foundation, insists the scenario would be bleak should Question 1 pass. He said state finances would be reduced to "junk bond status."
"It would have a very, very direct impact for most people in terms of local government services," Widmer said. "My belief is that over time, you'd see escalating pressure on the property tax, either more overrides or possibly even a statewide property tax."
Widmer said the property tax falls disproportionately on lower- and middle-income families.
"The income tax is a fairer tax because the wealthier pay a heavier share of it," he said.
Howell led the effort to put the question on the ballot both times. Her Committee for Small Government will be widely outspent.
The committee has raised $371,000, while the union-backed Coalition for Our Communities has taken in $1.59 million.
"Their advertising budget is ominous, but they have a tough sell," Howell said. "They have to convince people to part with their hard-earned money for politicians and special interests on Beacon Hill who have been wasting that money, handing it out in sweetheart deals and spending it on failed and flawed programs."
Will of the voters
The ballot question would become law if it passes. But the Legislature has ignored the will of the voters before. It refused to fund Clean Elections and froze the last phase of an income tax rollback that was supposed to drop the rate to 5 percent.
Political observers say there would be too much pressure on the Legislature to not implement the cuts if the measure passes.
Barbara Anderson, of Citizens for Limited Taxation, which put the tax rollback on the ballot in 2000, has endorsed Howell's effort.
"If the politicians won't keep their promise of 5 percent, then let's go for zero," Anderson said in a memo to CLT members.
The 2002 ballot question drew unexpected support, and was barely defeated, 48 percent to 40 percent. Another 12 percent of voters cast blanks.
This time, the state's three top political leaders — Patrick, House Speaker Salvatore DiMasi, and Senate President Therese Murray — have been quick to call for its defeat. Murray, D-Plymouth, said the loss of income tax revenue would have "devastating consequences."
"There would be no local aid, no money for schools or police or fire going to cities and towns," she said.
Steve Crawford, a spokesman for the Coalition for Our Communities, which opposes Question 1, said the budget would have to be cut back to 1995
levels.
Local vs. State taxes
Nine states have no income tax — New Hampshire, Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.
But many of those states have unique revenue sources: Alaska gets 82 percent of its revenue from oil; Nevada gets 17 percent of its budget from gaming taxes; and Florida is heavily reliant on tourism.
Most of those states rely more on local taxes than Massachusetts, according to the Massachusetts Taxpayers Foundation. Some also have higher sales and property taxes than the Bay State
New Hampshire had a median home property tax of $4,390, second highest in the nation, in 2007, according to The Tax Foundation, a nonprofit research group in Washington, D.C. Massachusetts' median home property tax was $3,328, sixth highest in the country.
New Hampshire also ranked second in property taxes as a percentage of income, at 5.99 percent, while Massachusetts was ninth, at 4.07 percent, according to The Tax Foundation.
"Anyone in Massachusetts who owns a home in New Hampshire or has friends in New Hampshire has heard them complain about the high property taxes," Crawford said.
Howell dismisses such comparisons, saying opponents use selective statistics to obscure an obvious point: Massachusetts is a high-tax state.
Counting both local and state taxes as a percentage of per capita personal income, Massachusetts ranked 23rd in the country this year, at 9.5 percent, while New Hampshire was 46th, at 7.6 percent, according to The Tax Foundation.
Far from devastating Massachusetts, Howell said, Question 1 will reinvigorate it.
"People will start moving to this state and staying in the state and opening up businesses in this state," she said. "We'll be far friendlier to businesses and jobs. It will save a lot of families from home foreclosures and bankruptcies because the high tax burden that they bear is putting many of us over the edge."
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