| | | OK With Reform Principles, Tax Panel Split on 'Revenue Neutrality'
By Jim O'Sullivan
STATE HOUSE NEWS SERVICE
BOSTON, DEC. 5, 2007…..A corporate tax study panel convened to resolve Gov. Deval Patrick's proposed alterations remains divided on whether businesses should contribute more revenues to state coffers, but appears in general agreement on recommendations to lower the overall business tax rate, impose taxes on Internet sales and force some companies to report out-of-state revenues.
The panel still splits roughly in half over whether corporations, which representatives say have faced $1.2 billion in new taxes over the last four years, should shoulder an added tax burden through reforms likely to be voted on Dec. 18.
“The commission's discussion today shows a tremendous consensus on bringing about a fair corporate tax system by adopting the governor's main tax policy suggestions, combined reporting and check-the-box conformity, as well as some reduction in the corporate tax rate,” said commission chairwoman and Patrick chief Leslie Kirwan, reading from a prepared statement to reporters after the meeting. She added, “There is remaining disagreement about revenue neutrality.”
Business advocates say tipping the revenue balance could be a deal-breaker for some on the commission.
Senate Minority Leader Richard Tisei (R-Wakefield) warned the commission that a narrow decision would likely fail before lawmakers. “It's going to get filed in the Legislature appropriately and you're not going to see any action,” he said. An anonymous vote, he said, would be “a powerful message sent to the Legislature.”
Meeting in the state comptroller's office Wednesday afternoon, the corporate tax code commission reviewed recommendations from subcommittees, which endorsed a gradual move to tax out-of-state but not overseas profits of companies sited here; limit the earned income credit to residents; apply excise taxes to insurance company subsidiaries; and sign into a multi-state agreement designed to collect revenues from e-commerce.
House Revenue Committee chair Rep. John Binienda (D-Worcester) circulated an outline of recommendations, including reducing the corporate tax rate to 5.3 percent, the same as the state's personal income. Binienda called revenue neutrality “a pre-condition for the consideration of any component of this proposal.”
The outline proposed a 6 percent tax rate, at a loss of roughly $700 million; enacting check-the-box and combined reporting for a gain of approximately $500 million; cutting business credits at a clip consistent with the lowered overall rate to gain roughly $100 million; and tweaking the minimum corporate rate for a gain of $100 million to net a revenue neutral package. Binienda's plan also called for the “streamlined sales” Internet tax reform and restricting the earned income credit to residents.
House Speaker Salvatore DiMasi's appointees argued in favor of making the changes “revenue neutral,” while Patrick's and Senate President Therese Murray's designees lean toward forwarding that issue to the Legislature.
Binienda's co-chair, Sen. Cynthia Creem (D-Newton), called for the commission to pass off the neutrality dilemma. “Why do we need to be stuck on this concept of revenue neutrality? I don't even know how it would work,” Creem said, adding, “With all due respect, this decision is not going to be made by this commission … Why not move it to the next level?”
Kirwan indicated she may steer the commission toward not making a formal recommendation on revenue neutrality. “I think there are other outcomes,” Kirwan said, including pushing a decision into the future.
Asked whether the commission would suggest a new corporate tax rate, Kirwan said, “I think there's a level of discomfort about that in the group.”
Lowering the overall rate – it is currently 9.5 percent - would provide a telltale for business trying to gauge Beacon Hill's attitude toward business growth, commission members said.
“If that rate were able to come down, the PR battle for Massachusetts would be so much easier,” said Karl Fryzel, a tax attorney at Edwards Angell Palmer and Dodge.
Michael Widmer, president of the Massachusetts Taxpayers Foundation, said the Bay State already ranks with New York and Hawaii among the highest-cost states for business, pointing to corporate tax “loophole closings” effectuated during the Romney administration, and another $150 million increase in unemployment insurance rates due next month.
“We're at a very serious competitive disadvantage by any measure,” said Widmer.
Widmer ripped as “a waste of taxpayer dollars” the state's highly touted tax credits for the film industry, saying the money should have been spent instead lowering the overall rate.
Patrick aides posit the new revenues from the “loopholes” as vital to state progress on health care, transportation, and housing.
Kirwan said it was “not clear yet” how the commission's report would factor into Patrick's budget proposal, due next month.
The two-hour meeting was leavened by flashes of revenue humor.
Robert Tannenwald, director of the New England Public Policy Center at the Federal Reserve Bank of Boston, joked, “You think taxation's bad without representation; you should see it with representation.” Kirwan laughed, “That's for all the legislators in the room.”
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