WHAT’S WRONG – AND WHY IS TAX FAIRNESS THE SOLUTION
– Massachusetts needs at least $2 billion in additional revenues to maintain vital state services in the Fiscal 2004 budget.
– Thanks to tax loopholes, favorable treatment, and generous deductions, the wealthiest 1% of taxpayers pay at about half the effective tax rate of the lowest 40% of taxpayers.
– About two-thirds of taxable income in Massachusetts goes to the upper 20% of taxpayers. Raising taxes on the lower 80%, who have only one-third of the income, is a painful and impractical way to try to solve the budget crisis.
– Requiring everyone to pay an equal share of about 8.2% of income (total from all state and local taxes – not just state income tax) would raise an additional $2.1 billion and resolve the budget shortfall.
– This would result in a tax cut for about half the taxpayers in Massachusetts. Another 20% would see no change in their tax burden.
– The top 20% would pay more, but they would still pay at a lower rate than other taxpayers have been paying for the last decade.
Tax fairness can be achieved by reducing taxes that fall on those who have been paying too much and increasing those taxes that fall mostly on the groups that have been paying less than their fair share.
The tax code itself is a complicated affair, and it is easy to get lost in the details. It is helpful to remember that the goals of tax code reform are 1) a fair distribution of taxes across all income groups and 2) sufficient revenues to maintain vital services.
How can we move toward tax fairness? For one thing, we can reduce reliance on the sales tax and the real estate property tax. We can increase tax deductions and exemptions that are available to people of average incomes. We can raise additional revenue from intangible property (stocks and bonds) that is held mostly by the topmost income groups. We can reduce taxes on tangible property (e.g. automobiles and homes) that are the major wealth holdings of moderate income taxpayers. We can remove sales tax exemptions from transactions that apply mostly to upper income taxpayers. After doing this, we must carefully assess the results to make sure that no group of taxpayers is paying more than their fair share.