Massachusetts State Budget
Distribution of Spending
Where Does the Money Go?
Other
13.6%
Local Aid
to Cities
& Towns
5.6%
Education
23.0%
Examples:
• Environmental programs
• Pensions
• Running the government
ER
INC
1871
REVERE
Debt
Service
6.3%
Interest Due
$
Public
Safety
8.5%
Medicaid
23.6%
Human Services
19.4%
Fiscal Year 2003 • Total Spending: $23.2 billion
• Every year, the Governor and the Massachusetts Legislature decide how to
spend the money in the budget.
• The largest categories of state spending are education, Medicaid, human
services, public safety, debt service, and aid to cities and towns.
(See Appendix for details of spending in these categories.)
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1
Massachusetts State Budget
Distribution of Revenue
Where Does the Money Come From?
Miscellaneous
& Charges
12.5%
Taxes
68.5%
Examples:
• Driver’s license fees
• Lottery
• College charges
Federal Aid
18.9%
$
Income Taxes
PAY STUB
Earnings
TAXES:
Fed. Withholding
Social Security
Medicare
Massachusetts Withholding
NET PAY
$1,386.54
-154.00
- 85.96
-20.11
-62.23
$1,064.24
Corporate
Taxes
Special Sales
Sales Taxes
Fiscal Year 2003
• To pay for services such as schools, health care, public safety, transportation, and
social services, the state collects revenue from a variety of sources. Over two-thirds
of the revenue comes from individual and corporate taxes. The next largest portion
comes from federal aid, and the remainder from a variety of other charges, such as
the lottery, drivers license and professional fees, and college charges.
(See Appendix for a breakdown of the “Taxes” category.)
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2
Types of State
and Local Taxes
PAY STUB
Earnings
TAXES:
Fed. Withholding
Social Security
Medicare
Massachusetts Withholding
NET PAY
★ Income
★ Sales
★ Special Sales
★ Corporate
★ Property
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3
$1,386.54
-154.00
- 85.96
-20.11
-62.23
$1,064.24
The Massachusetts Budget
is $1.4 Billion Short
{
Budget
Shortfall:
$1.4 billion
Total
Spending:
$23.2 billion
• When the state takes in less money (revenue) than it spends, it’s in a
budget “deficit.”
• As anyone knows from trying to balance a family budget or checkbook,
when there’s a deficit, there are basically three main choices on what to
do: 1) raise more money, 2) cut spending, or 3) borrow money.
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4
Some Big Budget Busters
Over the Last 10 Years
Total Annual Impact
of these tax cuts:
$1.43 billion
1992:
Mass. Estate
tax reduced
$253 million
1995:
Raytheon
Corp. tax cut
$61 million
2000:
Income tax cut
$700 million
(once phased in)
1998:
Dividend
&
1996:
Interest
tax
cut
Fidelity
$130
million
Corp. tax cut
$130 million
Source: Massachusetts Budget & Policy Center
• Over the last 20 years, Massachusetts reduced its tax
“bite” more than any state in the nation except Alaska.
Between 1979 and 1999, state and local taxes in
Massachusetts fell by more than 20% percent. In
contrast, the national average rose 3% percent during the
same period. While nearly all states were increasing the
tax “bite” relative to income, Massachusetts experienced
the steepest drop in the nation, other than Alaska. We’re
hardly “Taxachusetts” anymore!
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• Over the last 10 years, the
Legislature passed a number
of tax cuts that take huge
chunks of money out of the
budget each year. Some of
these tax cuts benefitted low
and middle-income people
and we support those cuts.
But most benefit only big
businesses and wealthy
people. Low and middleincome people get almost
nothing from these tax cuts.
• This “give-away” to wealthy
people and big business
drains huge amounts of
money out of the budget (the
“bucket”) that should be in
there.
• Next year, officials think the
state will bring in $1.4 billion
less money than it needs to
pay for the budget.
Who Gets Hurt from
Budget Cuts?
Child Care
School Programs
Dental Care
Prescription Drugs
Affordable Housing
Layoffs in Depts. of Mental
Health, Mental Retardation,
and Social Services
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6
Change in Income in Massachusetts
Late 1980s (1988-1990) to
Late 1990s (1998-2000)
Middle and Low-Income Massachusetts Families Didn’t Share in the 1990s Boom
+18%
20%
15%
+14%
10%
+4%
5%
0%
-0%
-5%
-7%
-7%
up to
$26,200
$26,200 $49,800
$49,800 $72,200
$72,200 $106,900
$106,900
and up
$188,000
and up
Bottom
20%
Second
20%
Middle
20%
Fourth
20%
Top
20%
Top
5%
-10%
Source:
Center on Budget and Policy Priorities and Economic Policy Institute, Pulling Apart, A State-By State Analysis of Income
Trends, Jan. 18, 2000. Researchers used three-year averages to enlarge the sample size, resulting in more valid data.
• During the last decade of economic growth (the late 1980s to the late 1990s), there
was a lot of growth in income, but the distribution of that growth was very uneven.
The wealthiest 20% of Massachusetts families did very well while low and middle
income families lost income or stayed the same. The biggest winners were the
wealthiest 5%.
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Percent of Income Paid
State and Local Taxes
in Massachusetts
Middle and Low-Income Massachusetts Families Have a Higher Tax Rate
Than Wealthy Families
11.6%
10.7%
10.5%
10.3%
9.9%
9.3%
8.7%
Bottom
20%
Source:
Second
20%
Middle
20%
Fourth
20%
Top
20%
Top
5%
Top
1%
Institute on Taxation and Economic Policy
• Lower income people pay a higher percentage of their income in state and local
taxes than high-income people do. In other words, Massachusetts places a greater
tax burden on low and middle-income families than it does on wealthy families.
This is pretty shocking since the previous chart showed that the wealthiest 20%
were the big winners over the past decade.
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Types of
Tax Systems
Regressive:
Washington
When less well-off people pay
a higher percentage of their
income in tax than more welloff people do, it’s called a
“regressive” tax.
17%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
10%
4%
Bottom 20%
Flat:
Oregon
14%
When all people pay roughly
the same percentage of tax on
their income, it’s called a
“flat” tax.
8%
11%
12%
10%
Middle 20%
Top 20%
10%
10%
Middle 20%
Top 20%
6%
4%
2%
0%
Bottom 20%
Progressive:
Delaware
When better-off people pay a
higher percentage of their
income in tax than less welloff people do, it’s called a
“progressive” tax.
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14%
12%
10%
8%
6%
6%
7%
8%
4%
2%
0%
Bottom 20%
9
Middle 20%
Top 20%
Percent of Income Paid in
Mass. State and Local Taxes –
Excluding the Income Tax
The Tax Burden is Reduced for Wealthy Families Far More
than for Middle and Low-Income Families
when the Income Tax is Excluded
when the Income Tax is Excluded
8.6%
6.2%
5.6%
5.2%
4.5%
3.7%
2.7%
Bottom
20%
Source:
Second
20%
Middle
20%
Fourth
20%
Top
20%
Top
5%
Top
1%
Institute on Taxation and Economic Policy
•
The state would have to cut at least $9 billion worth of programs, services and jobs from
education, health care, police & fire protection, the environment, roads and public
transportation. EVERYTHING we care about would be cut, because there’s no way to cut over
$9 billion without major damage to virtually every program.
•
Not only would low and middle income people lose many of the programs and services they care
about because of all the budget cuts, but they would also shoulder four times more of the tax
burden than the wealthiest 1%.
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Reviewing
the Key Points
★ Massive budget shortfall.
★ In the 1990s, Massachusetts
gave billions of dollars to
wealthy people and
corporations in tax cuts.
★ Wealthy people still pay a
smaller percentage of
income in state and local
taxes than do middle and
low-income people.
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What is the “Stop the
Cuts!” Campaign Doing?
★ Grassroots organizing
★ Lobbying legislators
★ Public education:
workshops
★ “Your Tax Cuts at Work”
Sticker Campaign
• Because of this work and the efforts of all the people who became active on this
issue, we got a progressive tax package passed that prevented over $1 billion in cuts.
This is a HUGE accomplishment and shows that good things can happen when
people organize together to make change!
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The Tax Package Passed
by the Massachusetts
Legislature
Tax Package
Item
Value in millions of dollars *
(in 2003)
0
wages ..........................$24
as
e
sam
the
ins
Ga
al
pit
Ca
x
✓ Ta
.$230
llback ................................
✓ Delay the Income Tax Ro
$150
¢ a pack ............................
75
x
Ta
e
ett
gar
Ci
the
ise
Ra
✓
185
ction ...............................$
Eliminate the Charitable Dedu
$258
by 25% .............................
Cut the Personal Exemption
TOTAL: $1.063 billion
ed
* These are estimates provid
mmittee
by the House Taxation Co
op the Cuts!” Coalition
✓ Supported by the “St
• The main thing to notice is that three out of the five proposals are progressive,
meaning that they fall more heavily on people who can afford to pay.
• Unlike most other states, Massachusetts did not use many gimmicks and accounting
tricks to “solve” its budget problems. We used a mix of raising taxes, cutting
spending, and borrowing from the rainy day fund to close the budget shortfall.
• Despite this large tax package, which raised $1.7 billion, cuts were also made to
important programs and services because the budget gap was $2.6 billion. These cuts
are hurting many people and we would have liked to see more revenue raised so that
there would have been NO cuts.
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What You Can Do
★ Join the “Stop the Cuts!”
Coalition
★ Call and write your
legislators
★ Be sure to include the
message “Raise Revenue!”
when advocating for
your issue
★ Become a workshop trainer
★ Write letters to the editor
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14
The Massachusetts
Budget Crisis:
Who Hurts? Who Pays?
September 2002
PARTICIPANT PACKET
A Workshop produced for the “Stop the Cuts!” Campaign by
and
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Appendix
1. Breakdown of FY 2002 State Spending (from Chart 1)
2. Breakdown of FY 2002 State Revenue Sources (from Chart 2)
3. Total State and Local Taxes as a Share of Personal Income (1979 - 1999)
4. Big Budget Busters Explained (from Chart 5)
Massachusetts State Budget FY 2002- Distribution of Spending
Spending in Human Services
Dept of Mental Retardation
Dept. of Mental Health
Dept. of Social Services
Cash Assistance
Other Health and Human Services programs
Dept. of Public Health
Child Care
Elder Affairs
Senior Pharmacy Program
Percent of State Spending
4.3%
2.7%
2.6%
2.4%
2.4%
2.3%
1.8%
0.8%
0.4%
Spending in the “Other” category
Pensions
Administrative costs
Group Health Insurance
Environmental Affairs
Transportation
Housing & Community Development
Labor & Workforce Development
Consumer Affairs
Attorney General
Economic Development
4.2%
3.3%
3.2%
1.0%
0.6%
0.5%
0.3%
0.2%
0.2%
0.1%
Examples of Public Safety programs
State Police Prisons system
Court system District
Attorney General’s office
Executive Office of Public Safety
Local Aid to Cities and Towns
Money that goes to cities and towns that they can spend freely (some of this money
comes from the lottery)
Massachusetts State Budget FY 2002 - Sources of Revenue
Breakdown of Taxes
Income tax (individual and corporate)
Sales tax
Gas tax
Tobacco tax
Estate tax
Room occupancy tax
Deeds tax
Alcohol tax
Percent of State Revenue
59.0%
21.0%
4.7%
1.8%
1.3%
0.9%
0.8%
0.4%
Total State and Local Taxes, FY 1979 and FY 1999
(as a share of personal income)
FY 1979
RANK
STATE
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
—
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Alaska
New York
Wyoming
Massachusetts
Minnesota
Hawaii
Vermont
Wisconsin
Arizona
Rhode Island
New Mexico
Montana
Delaware
Maine
Michigan
Maryland
New Jersey
Louisiana
Utah
Nebraska
Oregon
Colorado
West Virginia
U.S. TOTAL
Washington
Pennsylvania
Nevada
Kansas
California
Iowa
Illinois
Mississippi
Kentucky
Idaho
Connecticut
Georgia
South Carolina
North Carolina
South Dakota
Virginia
Oklahoma
North Dakota
Tennessee
Missouri
Indiana
Florida
Alabama
Ohio
New Hampshire
Arkansas
Texas
FY 1999
SHARE OF PERSONAL INCOME
20.2%
14.8%
13.2%
13.2%
12.4%
12.0%
11.9%
11.8%
11.8%
11.6%
11.2%
11.2%
11.1%
11.0%
11.0%
10.9%
10.7%
10.7%
10.7%
10.7%
10.6%
10.6%
10.6%
10.5%
10.5%
10.4%
10.3%
10.2%
10.2%
10.1%
10.1%
10.0%
9.9%
9.9%
9.9%
9.8%
9.7%
9.7%
9.6%
9.4%
9.3%
9.2%
8.9%
8.8%
8.8%
8.8%
8.7%
8.7%
8.6%
8.4%
8.4%
RANK
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
—
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
STATE
SHARE OF PERSONAL INCOME
New York
Maine
Wisconsin
Hawaii
Minnesota
New Mexico
Vermont
Connecticut
West Virginia
North Dakota
Utah
Rhode Island
New Jersey
Wyoming
Delaware
California
Arkansas
Idaho
Michigan
Kentucky
Mississippi
Washington
Ohio
US TOTAL
Montana
Louisiana
Iowa
Kansas
Nebraska
Massachusetts
Arizona
Pennsylvania
Georgia
Oklahoma
Illinois
North Carolina
Indiana
South Carolina
Maryland
Alaska
Missouri
Colorado
Virginia
Oregon
Florida
Nevada
Texas
South Dakota
Alabama
Tennessee
New Hampshire
13.8%
13.6%
12.4%
12.2%
12.0%
12.0%
11.9%
11.8%
11.5%
11.4%
11.4%
11.3%
11.2%
11.1%
11.0%
11.0%
11.0%
11.0%
10.9%
10.9%
10.9%
10.8%
10.8%
10.8%
10.7%
10.7%
10.6%
10.6%
10.5%
10.5%
10.5%
10.5%
10.4%
10.3%
10.3%
10.3%
10.2%
10.2%
10.2%
10.1%
9.9%
9.9%
9.8%
9.8%
9.8%
9.8%
9.3%
9.3%
8.8%
8.6%
8.6%
Big Budget Busters Explained
Estate Tax Cut
An estate tax is a tax on the property of a person when he or she dies. Massachusetts used to have a state
estate tax beyond the amount that could be deducted from the federal estate tax, meaning that estate taxes
were higher here than in most states. The estate tax cut in 1992 lowered the state’s estate tax to the level
that would simply be offset by the federal deduction.
Dividend & Interest Tax Cut
Massachusetts used to tax income from dividends and interest from out-of-state banks at a rate of 12
percent. This rate was almost twice the tax rate on income from a job (then 5.85%). In 1998
Massachusetts voters passed a ballot initiative to lower the dividend and interest tax rate to the same rate
as income.
Raytheon and Fidelity Tax Cuts (officially called the “Single Sales Factor for
Manufacturers” and the “Single Sales Factor for Mutual Fund Companies”)
These two laws changed the way corporate taxes are calculated to lower taxes dramatically on companies
that are based in Massachusetts, but have substantial presence in other states or countries. (To be precise,
the laws changed the double-weighted sales factor apportionment formula to a single-weighted sales factor
formula.) The reason these tax cuts are referred to as the “Raytheon” and “Fidelity” tax cuts is because
Raytheon was the lead lobbyist and beneficiary of the cut for manufacturers and Fidelity was the lead
lobbyist and beneficiary of the cut for mutual fund companies.
Income Tax Cut
In 2000, Massachusetts voters passed a ballot initiative to gradually reduce the personal income tax from
5.85% to 5.6% in 2001; 5.3%; in 2002; and finally 5.0% in 2003. Working and middle-income people
receive only a fraction of the benefit that wealthy people receive from this tax cut.
The Massachusetts
Budget Crisis:
Who Hurts? Who Pays?
Participant Packet
September 2002
A Workshop produced for the “Stop the Cuts!” Campaign by
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