Massachusetts taxpayers could see a small reduction in their state income taxes next year if revenue projections hold.
By law, the state’s income tax has to go down 0.05 percent if state revenues meet certain thresholds. So the tax rate on January 1, 2019 could be 5.05 percent, down from 5.1 percent now.
The first threshold leading to that reduction has been met: Baseline tax revenue grew 5.485 percent during fiscal year 2018 (which ended in early summer), which is more than double the 2.5 percent needed, according to State House News Service, citing a letter Thursday from Christopher Harding, commissioner of the Massachusetts Department of Revenue.
Several other triggers are also needed, all having to do with how much tax revenue the state receives.
The state took in $25.9 billion in tax revenue during fiscal year 2018 (which ran from July 1, 2017 through June 30, 2018), up more than $2.1 billion from the prior fiscal year, according to the revenue department letter cited by State House News Service.
The tax-cut benchmarks were set by legislators in 2002 as a means of gradually rolling back the state’s income tax to 5 percent, where it stood in the late 1980s. A budget crisis in 1990 led state legislators to increase the rate to 5.95 percent and then at one point to 6.25 percent (in 1991), and it stayed close to 6 percent throughout the 1990s.
In 2000, fed-up voters passed a ballot question that called for reducing the state’s income tax to 5 percent over three years, by a 57 to 39 percent margin. State legislators worried about the impact on budgets in 2002 froze the then-rapidly-falling state income tax at 5.3 percent, but provided a mechanism for gradually reducing the rate to 5 percent.
That gradual reduction – by 0.05 percent a year – automatically happens if the state tax revenues meet thresholds established in the law.
The last time the state took in enough tax revenue to trigger a reduction in the rate was three years ago, when the income tax rate fell from 5.15 percent to the current 5.1 percent, effective January 1, 2016.
Tax revenues weren’t brisk enough in fiscal year 2016 or fiscal year 2017 to trigger a tax cut. But the state’s economy is humming, and projections envision substantial increases in tax revenue. Governor Charlie Baker and state legislators envisioned the expected tax cut in the state’s budget for fiscal year 2019 (which began this past July 1), assuming a reduction of $83 billion in revenue from the state income tax, according to State House News Service.
Under the 2002 law, only one additional reduction can take place before the income tax rate reaches the planned destination of 5.0 percent.
