Some 30 years after state legislators passed a temporary increase in the state’s income tax, the rate in Massachusetts may return to 5 percent in 2020.
Governor Charlie Baker announced that several economic thresholds have been met as set forth by state law to trigger an automatic reduction in the state’s income tax rate from 5.1 percent in 2018 to 5.05 percent in 2019, which begins in two weeks.
While the incremental decrease is tiny, the result is the lowest the state’s income tax rate has been since 1988, when it was 5 percent. If thresholds are met a year from now, the income tax rate is set to drop to 5 percent in 2020 (and stay there).
The state’s income tax rate – which is flat, meaning one rate for all levels over the personal exemption – has been north of 5 percent since 1989.
For veteran tax skeptics, the long journey has been too long.
“Pardon us if we’re not popping the champagne corks. 5.05 percent is a step in the right direction, but it is too little much, much too late,” said Chip Ford, executive director of Citizens for Limited Taxation, in a written statement Monday.
In July 1989, amid a budget shortfall, legislators passed an unpopular bill raising the income tax rate to 5.75 percent – a 15 percent increase – in what was billed a temporary move to fix an immediate problem. (“All of us in state government have arrived at this unhappy moment through a combination of miscalculations, mistakes and misinformation,” then-Governor Michael Dukakis on July 13, 1989, announcing budget cuts that accompanied the tax increase.)
The measure increased the tax rate to 5.35 percent in 1989 and then 5.75 percent in 1990.
The temporary nature of the tax increase was emphasized by most supporters of it on Beacon Hill.
Here’s a header from a roll call chart The Boston Globe ran on Friday, July 7, 1989, the day after the Massachusetts House of Representatives passed the tax increase.
Yet from that day to this, the income tax rate has never returned to 5 percent.
The 1989 tax increase helped lead to Republican victories in 1990 for governor and state treasurer, although a statewide referendum that year that would have rolled back taxes to 1988 levels, Question 3, failed 60-40. It was criticized at the time for decreasing taxes too quickly, which opponents said would require harsh cuts in government services.
Later in the 1990s, legislators increased the tax rate as high as 6.25 percent.
In 2000, though, voters approved a ballot question that called for reducing the state income tax rate to 5 percent, with gradual reductions over the course of three years. That referendum passed 57 to 39 percent.
The tax rate dropped to 5.3 percent in 2002 on schedule, but then the Legislature, at the behest of then-House Speaker Thomas Finneran, passed a bill freezing the rate at 5.3 percent. Ford, of Citizens for Limited Taxation, on Monday called the 2002 bill a “middle-finger salute” to voters.
The 2002 tax bill included built-in triggers that would automatically reduce the income tax rate by tiny fractions — .05 percent per year – if they were met. The triggers include the amount of tax revenue the state takes in during the previous fiscal year.
During this decade, those 0.5 percent decreases occurred in 2012, 2014, 2015, and 2016 (though not in 2013 or 2017).
