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What is in the Governor's Tax Plan?

Posted by John Regan on Feb 11, 2013 7:56:00 AM

Governor Deval Patrick last month proposed historic changes to the Massachusetts tax system in an effort to raise some $1.9 billion per year for transportation and education.

Massachusetts State BudgetThe complex proposal would redefine the tax landscape for everyone from parents with children in day care, to workers accustomed to a deduction for health savings accounts, to employers who purchase computer software. The plan also calls for automatic increases in the gasoline tax, highway tolls and MBTA fares.

Here is a summary of the administration tax plan. Most of the summary was prepared by the Massachusetts Taxpayers Foundation, with additions from the AIM Government Affairs team.

What is your opinion of the proposal and how might it affect your business? The AIM Board of Directors is currently developing a position on the plan and would like to hear from as many employers as possible.

Please leave your opinions in the comments section below, or email Brad MacDougall, Vice President of Government Affairs, bmacdougall@aimnet.org.

  Annualized Revenue Gain/Loss (Millions) % of Proposed New Revenues

Changes in Tax Rates

 

 

Raise the personal income tax rate from 5.25% to

6.25% and double the personal exemption

 $1,480

 

Reduce the sales tax rate from 6.25% to 4.5%

 ($1,370)

 

Total Tax Rate Changes

 $110

 6%

     
Expanded Individual Taxes    
Eliminate 44 personal income tax exemptions and deductions (estimate based on 6.25% rate)  $1,080  
Expand sales tax to cover candy and soda
(estimate based on 4.5% rate)
 $53  
 Increase cigarette/smokeless tobacco taxes  $166  
 Total Individual Taxes  $1,299  68%
     
Additional Corporate Taxes    
Apply the sales tax to customized computer software and computer and data processing services.  $265  
Reclassify security and utility corporations as corporations or financial institutions  $35  
Eliminate the FAS 109 deduction   $76  
Change sourcing rule for services in calculating
sales factor in apportionment formula
 $35  
Limit film tax credits to $40 million per year  $40  
Total, Corporate Taxes  $499   26%
     
Total New Revenues  $1,908  100%

 

Here are some of the 44 personal exemptions and deductions the plan would eliminate:

  Value at 6.25% Rate (millions) Filers Affected
Deduction for Employee Contributions to Social Security and Public Pension Plans  $357 3.585m
Exemption of Capital Gains on Home Sale  $285 55,000
Deductions for Dependent(s) under 12  $162 510,000
Deduction for Business-Related Child Care Expenses  $18 54,000
Exemption of Dependent Care Expenses  $11 NA
Exemption of Certain Foster Care Payments  $4 NA
Deductions for Adoption Fees and Employer-Provided Adoption Assistance  $0.6 1,000+
Tuition Tax Deduction  $43 65,000
Exemption of Scholarships and Fellowships  $23 255,000
Personal Exemption for Students Aged 19 or Over  $10 NA 
Employer-Provided Education Assistance  $10 NA
Exclusion from Gross Income of Parking, T-Pass and Vanpool Fringe Benefits  $46 NA
Commuter Deduction  $8 225,000
Exemption for Premiums on Accident and Accidental Death Insurance  $28 1.97m
Deduction for Health Savings Accounts  $15 10,000
Septic System Repair Credit  $15 11,000
Exemption of Premiums on Group-Term Life Insurance  $14 NA 
Exemption of Workers' Compensation Benefits  $10 NA
Exemption of Meals and Lodging Provided at Work  $9 NA
Exemption of Interest on Savings in Massachusetts Banks  $6 505,000 
Credit for Removal of Lead Paint $3  1,850
Renewable Energy Source Credit $1.5  2,000 

 

Here are proposed increases in taxes and user fees pertaining to transportation:

Index the Gasoline Tax $13 million in FY 14. Increases gas tax revenue $118 million by FY 21.
MBTA Fares 5% biennial fare increase beginning in FY 15. Increases fare revenue 27 percent by FY 23.
Registry of Motor Vehicles Fees 10% fee increase every five years beginning in FY 16. Increases fee revenue 20 percent by FY 23.
Tolls 5% biennial increase beginning in FY 15. Increases toll revenue 27 percent by FY 23.

 

Topics: Massachusetts state budget, Issues, Taxes

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