By Al Norman
With state officials warning of “huge cuts to services” in the FY 2012 budget, it’s time for the state to close expensive tax loopholes before throwing seniors into a hole.
Every year the state publishes a tax expenditure budget that lists all the tax breaks that go to individuals and businesses. Some of the biggest ones go to ordinary taxpayers — but there are an armful of tax subsidies that go to big corporations too.
Massachusetts spends a significant share of its economic development resources on these tax expenditures — which is a fancy term for corporate welfare. Government created these giveaways in an effort to encourage business activity — but the results are often less than breathtaking.
Tax expenditures are provisions in the tax code, such as exclusions, deductions, credits and deferrals. When such provisions are enacted into the tax code, they lower the amount of tax revenues that may be collected.
A tax expenditure is just like a direct government expenditure. Some tax expenditures involve a permanent loss of revenue, and thus are comparable to a payment by the government.
Every year, the Department of Revenue publishes a tax expenditure budget, which includes descriptions of the state’s tax expenditures, with estimates for the revenue loss associated with each of them. In total, we giveaway $20 billion in tax expenditures from the personal income, corporate income and sales taxes.
A major difference between budget appropriations and tax expenditures is that budget items have to be reauthorized by the legislature each year — but tax expenditures remain in effect without the legislature having to take action. They have basically become hidden entitlements.
The state’s reliance on economic development tax expenditures has been increasing, while many budget items have been cut to the bone. Now we must take a closer look at whether or not these expenditures are meeting their intended goals. During this extended recession, it is reasonable to suspend these expenditures on corporations until our economic picture brightens. We must spread the pain as broadly as possible, so that no sector of government spending or tax breaks is held harmless. In a Commonwealth, we share the good times as well as the bad.
Certain ones of these tax loopholes should be sewed up for at least the next two fiscal years. If things improve, these tax breaks can be restored. The tax subsidies listed below represent only 4.6 percent of total tax expenditures in the state. If these tax expenditures were suspended for FY 2012, it would save the Commonwealth $912 million. Given our $2 billion shortfall — closing this list of tax subsidies could make up half our losses:
•Exemption for fuel used in operating aircraft and railroads, $32 million saved.
•Exemption for materials, tools, fuels and newspaper printing machinery, $48 million.
•Exemption for materials, fuels and machinery used in furnishing power, $118 million.
•Exemption for materials, fuels and machinery used for research and development, $58 million.
•Film (or motion picture) credits, $50 million.
•Economic opportunity area credit, $24 million.
•Research credit, $105 million.
•Exemption for property subject to local taxation, $170 million.
•Unequal weighting of sales, payroll and property in the apportionment formula, $307 million.
Gov. Deval Patrick will submit the first budget for 2012 in late January. Please take this article, clip it, and mail it to: Hon. Deval Patrick, State House, Boston, MA 02133. Put a little note with it that explains how you feel about avoiding further cuts to services that seniors depend upon — and ask the governor to close the loopholes first.
Al Norman is the Executive Director of Mass Home Care. He can be reached at 413-773-5555, or at: info@masshomecare.org
