Massachusetts has survived the Great Recession far better than most other states.
But the interesting part of the story is that the commonwealth has maintained its economy and balanced its books while simultaneously lowering the corporate tax rate. Employers on will see on January 1 the final installment of a three-year drop in rates from 9.5 percent to 8 percent approved as part of a corporate tax reform passed by the Legislature and signed by Governor Deval Patrick in 2008.
The drop in corporate taxes in the Bay State has been among the most dramatic in the nation at a time of widespread fiscal distress for state and local governments. Massachusetts made the single largest jump in the nation from Fiscal Years 2010 to 2011 on the Corporate Tax Index compiled by the Washington-based Tax Foundation, improving from a ranking of 47 to 36.
“A lower corporate tax rate means lower costs for employers. This will improve the Massachusetts business climate and help the commonwealth differentiate itself from other peer-group states in the larger competition for jobs,” said Paul O’Connor, Vice President of Taxes at EMD Millipore in Bedford and Chair of the AIM Tax Committee.
Despite the corporate tax-rate reduction, the commonwealth has seen an increase in total corporate tax revenue. The Massachusetts Department of Revenue reports that corporate and business tax collections for the fiscal year ending June 30 totaled $2.228 billion, up $108 million, or 5.1 percent, from the previous fiscal year.
And the corporate tax is not the only levy heading lower on January 1. State officials confirmed this week that the strengthening economy will trigger a decrease in the Massachusetts income tax rate from 5.3 percent to 5.25 percent, saving residents between $111 million and $117 million next year.
The tax picture to be sure is not uniformly merry and bright here in the commonwealth formerly known as Taxachusetts.
The 2008 corporate tax overhaul contained a combined-reporting provision that AIM still believes discourages global businesses from adding jobs for Massachusetts residents. The commonwealth also raised the sales tax from 5 percent to 6.25 percent during the depths of the recession in 2009 to generate approximately $900 million to mitigate layoffs and budget cuts.
Massachusetts ranks 32 in the overall Tax Foundation rankings. The commonwealth posts a strong 15 on individual income tax rates and a respectable 24 on sales tax, but suffers from a 49 ranking on Unemployment Insurance taxes and 43 on property taxes.
But give credit where credit is due.
Massachusetts lawmakers and the Patrick Administration navigated the commonwealth through a multi-billion-dollar fiscal crisis and come out the other side with balanced budgets, a $1.3 billion rainy day fund and a recent upgrade of the state bond rating from Standard & Poor’s to AA+. For employers who often wonder aloud why government can’t run like a business, it’s a record to applaud.