PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

State Spotlight: Massachusetts Lawmakers Pushing Bigger Tax Burden on Yankee Ingenuity

By at 10 July, 2019, 8:15 am

by Raymond J. Keating-

Small Business Policy Index 2019: Massachusetts ranked 38th among the 50 states.

SBE Council’s “Small Business Policy Index 2019” ranks the 50 states according to 62 different policy measures, including a wide array of tax, regulatory and government spending and performance measurements.

Small Business Tax Index 2019: Massachusetts ranked 32nd among the 50 states.

SBE Council’s “Small Business Tax Index 2019” is included in the Policy Index report, ranking the states according to a wide array of tax measures, including income, capital gains, property, death, unemployment, and various consumption-based taxes like state gas and diesel levies.

When it comes to the burdens of government, the Massachusetts public policy climate unfortunately works against good old Yankee ingenuity. That is, Massachusetts places significant governmental burdens on the traits of inventiveness, problem solving, enterprise and self-reliance. And now, lawmakers in Massachusetts are taking steps to make those burdens even heavier.

According to SBE Council’s “Small Business Policy Index 2019: Ranking the States on Policy Measures and Costs Impacting Entrepreneurship and Small Business Growth,” which ranks the 50 states according to 62 different policy measures, including assorted tax, regulatory and government spending measures, Massachusetts came in a poor 38th among the 50 states. And the state earned number 32 out of 50 on the “Small Business Tax Index 2019,” which is a subset of the larger Policy Index, whereby the states are ranked only on tax measures.

Among the negatives for Massachusetts are high corporate income and capital gains taxes; fairly high property taxes; imposition of a death tax; a weighty energy regulatory burden; the second highest level of state and local government debt; a lofty level of state and local government spending; poor private property protections; and a very high minimum wage mandate.

But that’s apparently not enough.

In June, state lawmakers took the first step toward imposing a new 4 percent tax surcharge on income above $1 million. That would be on top of the state’s flat income tax rate of 5.05 percent, creating a top individual income and capital gains tax rate of 9.05 percent.

This measure would require passage by the state legislature for a second time in the 2021-22 session, and then it would have to be approved by voters in November 2022.

Given that Massachusetts already inflicts high levels of government spending, it’s hard to take seriously that whatever funds might be raised by this tax increase are urgently needed for education and transportation purposes. It’s simply another case of an insatiable desire to expand the size and reach of government, notable government waste, a class-warfare bias, and an inability to grasp the negative effects of higher taxes.

If this tax increase winds up becoming a reality, Massachusetts would drop from 38th on the “Small Business Policy Index” to 44th (holding matters unchanged in other states), and from 32nd on the “Small Business Tax Index” to 40th.

For good measure, the Tax Foundation has noted, “The higher rate would be paid by roughly 11,000 Massachusetts business tax returns that account for more than 62 percent of all Massachusetts’ pass-through business income, according to 2016 IRS data.”

Yes, this is a tax on small business.

Any tax increase is an economic negative by draining resources out of the private sector, where resources are used for consuming, savings or investing, all disciplined by profits, losses, prices and competition; and handed over to government to be redistributed according to politics, where special-interest pressures, inefficiency, and subsidizing failure reigns supreme. In addition, reducing the potential returns on entrepreneurship and investment means that the incentives to undertake such critical activity are reduced, and/or the incentives to undertake such risk taking somewhere else are enhanced.

If they care about entrepreneurship and economic growth in Massachusetts, then state lawmakers would be wise to let this tax measure die. But if elected official fail to see the obvious problems, then voters will need to reject the measure when it arrives at the ballot box.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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