gov. deval patrick's proposal for tax reform

7/30/2019 Gov. Deval Patrick's proposal for tax reform

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Executive Office for

Administration and Finance

State House

Rooms 373 & 272

Boston, MA 02133

Tax Reform

January 2013

Administration & Finance


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Our Goals

In order to invest in education, innovation, and infrastructure, the Patrick-Murray

Administration proposes to generate new revenue in accordance with these

principles:

1. Any proposal to generate new revenue must be comprehensive, allowing us to

pay our bills, maintain what we have, and invest in new development to fostereconomic growth

2. Any proposal to generate new revenue for transportation must be dedicated for

that purpose

3. Any proposal to generate new revenue must be competitive and fair, both

allowing Massachusetts to compete with our neighbors and protecting the most

economically vulnerable among us


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*Personal exemption for Single/Head of Household/Joint filers.

Tax Revenue Proposal

Status Quo New Rates Policy Changes Revenue

Personal

Income

5.25%$4,400/

$6,800/

$8,800*

6.25%$8,800/

$13,600/

$17,600*

Increase rate to 6.25% (lower rate for short

term capital gains to 6.25%)

$2.57B $2.81B

Increase personal exemption 2x ($1.09B)

Eliminate 45 tax expenditures $1.33B

Sales 6.25% 4.50% Lower rate to 4.50% ($1.37B) ($1.10B)

Tax custom modifications to canned software

and related computer services

$265M

Corporate

Income

8.00% 8.00% Eliminate FAS 109 deduction $76M $194M

Eliminate special classifications for security

and utility corporations

$83M

Implement sales factor sourcing for services $35M

Total $1.90B


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Impact to People

$400 $1,000$1,900

$3,500

$13,900

$500$700

$1,000

$1,400

$2,300

$300$1,100

$2,300

$4,300

$17,600

$400

$500

$800

$1,000

$1,700

$-

$5,000

$10,000

$15,000

$20,000

$25,000

Average Tax by Income Quintile

Avg. Income Tax

Avg. Sales Tax

Status Quo New Policy

0-20% $102,886 5.48% 6.49%

Total 5.63% 6.27%

Note: This analysi s does not incl ude ~270,000 households that do not file

income taxes. Excludes capital gains.

Effective tax rates (sales and

personal income)

Income Quintile

Net Adjusted Gross

Income


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Allocation of New Tax Revenue: FY14-FY18 and FY23

Uses of New Tax Revenue by Fiscal Year ($Ms- Before Inflation)

FY14 FY15 FY16 FY17 FY18 FY23

New Revenue 779 1,900 1,900 1,900 1,900 1,900

Investments

Transportation 231 600 700 755 755 755

Education 912 975 975 1,020 1,020 1,020

Innovation 36 50 100 125 125 125Total New Spending 1,179 1,625 1,775 1,900 1,900 1,900

(Issue)/Repay Revenue Note 400 (275) (125)


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Transportation Need for New Tax Revenue

FY14-FY23 Transportation Financing Gap from

The Way Forward Report

Periodic, consistent fare/fee/toll increases (maintain real impact)

and Western AET savings

MassPort / Gaming / Convention Center contributions

Indexing gas tax to inflation (maintain real impact)


$231M* $600M $700M $755M $755M $755M

*FY14 allocation reflects items that can be implemented immediately and the launch of the capital program.


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Transportation Need: Solutions from Current Tools(Not Including Gas Tax)

Solutions ($Ms) FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23

MBTA Fares - 27 27 57 57 89 90 124 125 162

RMV Fees - - 55 56 57 58 60 128 131 134

Tolls - 17 17 35 36 55 56 77 78 101

Western Turnpike AET Savings - - 50 51 53 54 55 57 58 59

MassPort Other Contributions - 10 10 11 11 11 11 12 12 12

Gaming 25 12 - 50 51 53 54 55 57 58

Convention Center - - - 10 10 11 11 11 11 12Total 25 66 159 270 275 330 336 463 472 538

Notes

MBTA Fares 5% biennial fare increase beginning in FY15. Increases fare revenue 27% over baseline by FY23.

RMV Fees 10% fee increase every fi ve years beginning in FY16. Increases fee revenue 20% over base line by FY23.

Tolls 5% biennial fare increase beginning in FY15. Increases fare revenue 27% over baseline by FY23.

Western Turnpike AET Savings Preliminary estimate.

MassPort Other Contributions Preliminary estimate.

Gaming One-time available in FY14 (2/3rds). Recurring amount available in FY17.

Convention Center Preliminary estimate.


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Fiscal Year Motor Fuels Tax

Motor Fuels

Tax

Collections

($Ms)

Motor Fuels

Tax

Motor Fuels

Tax

Collections

($Ms)

New

Revenue

($Ms)

FY14 0.2100$ 664$ 0.2142$ 677$ 13$

FY15 0.2100$ 660$ 0.2185$ 686$ 27$FY16 0.2100$ 661$ 0.2229$ 702$ 40$

FY17 0.2100$ 669$ 0.2273$ 724$ 55$

FY18 0.2100$ 674$ 0.2319$ 744$ 70$

FY19 0.2100$ 677$ 0.2365$ 763$ 85$

FY20 0.2100$ 681$ 0.2412$ 782$ 101$

FY21 0.2100$ 685$ 0.2460$ 802$ 118$

Current Policy New Policy (Index to Inflation)

Transportation Need: Solutions from Indexing Gas Tax

Note: Analysis assumes 2% annual inflation.

Indexing the gas tax to inflation, beginning in FY14, would generate $118M in additional

revenue by FY21.


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0

10

20

30

40

50

60

California

NorthCarolina

Washington

WestVirginia

RhodeIsland

Wisconsin

Pennsylvania

Maine

Oregon

Minnesota

Ohio

Kentucky

Nebraska

Montana

Vermont

Idaho

NewYork

Connecticut

Utah

Kansas

SouthDakota

Nevada

Maryland

Delaware

NorthDakota

Colorado

Iowa

Arkansas

Tennessee

Massachusetts

Georgia

Louisiana

Illinois

Texas

NewHampshire

Michigan

Arizona

NewMexico

Federal

Mississippi

Indiana

Alabama

Virginia

Missouri

Hawaii

Oklahoma

SouthCarolina

Florida

NewJersey

Wyoming

Alaska

Total Gasoline Tax (Cents per Gallon)60 c/gal

47 c/gal

Gas Tax

Data source: Federation of Tax Administrators.

Fully funding the transportation investment would require increasing the gas tax to

60 cents per gallon (47 cents after solutions from current tools).


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Public Infrastructure Fund

All sales tax will go to a new Commonwealth Public Infrastructure Fund

Including amounts already pledged to the School Building Authority,

the MBTA, and MassDOT

Amounts pledged to the School Building Authority, the MBTA, and

MassDOT pass-through the fund without harm to funds or bondssupported by those funds

Amount pledged to MassDOT will be increased to cover transportation

gap

The fund may be used for direct expenditure by the Commonwealth,

grants, or debt service related to any public infrastructure The fund is not intended for governmental infrastructure such as state

offices or information technology, soft assets such as master plans, or

administrative costs such as payroll


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Other Infrastructure 2.15 1.69 1.57 1.50 1.50 1.50

Transportation Gap 0.23 0.69 0.81 0.88 0.88 0.88

MBTA 1.12 1.12 1.12 1.12 1.12 1.12

MSBA 1.00 1.00 1.00 1.00 1.00 1.00

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

CentsontheDollar

Allocation of Sales Tax

Sales Tax Dedicated Entirely to Transportation and

Infrastructure

Transportation

ranges from

1.02 to 1.32

cents for FY15-

FY23 (2.14 to

2.44 cents

including the

MBTA).


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Economic Competitiveness: Comparison to Other States

Highlighted comparison states include neighbors

(CT, ME, NH, RI, VT), industry competitors (CA, NJ,

NY, OH, PA), and those ranked best for business (CO,

GA, NC, VA, TX).


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Economic Competitiveness: Comparison to Other States

Highlighted comparison states include neighbors

(CT, ME, NH, RI, VT), industry competitors (CA, NJ,

NY, OH, PA), and those ranked best for business (CO,

GA, NC, VA, TX).


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Personal Tax Expenditures

Proposal eliminates 45 personal tax expenditures

This simplifies the tax code

If the goal is also a fairer tax code, reducing the sales tax and doubling the

personal exemption is a more efficient way to achieve that result than

retaining these personal tax expenditures Impacts on individuals must be considered in light of all tax changes in the

proposal, including reducing sales tax and doubling personal exemptions


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Personal Income Tax Expenditures: Proposed for EliminationTE Budget Code Tax Expenditure Revenue Source Beneficiaries

1.001 E xemption of Premiums on Accident and Accidental Death Insurance $ 24 I.R.C. 1,970,000

1.002 Exemption of Premiums on Group-Term Life Insurance $ 12 I.R.C. -

1.003 Life insurance interest $ 211 I.R.C. -

1.010 Exemption of Workers' Compensation Benefits $ 8 I.R.C. -

1.011 Exemption of Dependent Care Expenses $ 9 I.R.C. -

1.012 E xemption of Ce rtai n Foster Care Payme nts $ 3 I.R.C. -

1.013 E xemption of Payments Made to Coal Miners $ - I.R.C. -. Exem tion of Rental Value of Parsona es . . . -

1.015 Exemption of Scholar sh ips and Fel lowships $ 19 I .R.C. 255,000

1.016 E xclusion of Certain Prizes and Awards $ - I.R.C. -

1.017 E xemption of Cost-Sharing Payments $ - I.R.C. -

1.018 Exemption of Meals and Lodging Provided at Work $ 8 I.R.C. -

1.019 Treatment of Business-Related Entertainment Expenses $ - I.R.C. -

1.020 Exemption of Income from the Sale, Lease or Transfer of Certain Patents $ - M.G.L. -

1.021 Capital gains on home sales $ 240 I.R.C. 55,000

1.030 Parking, T-pass, and vanpool fringe benefits $ 39 I.R.C. -

1.031 Health Savings Accounts (exemption) $ - I.R.C. -

1.032 Employer-Provided Adoption Assistance $ - I.R.C. -

1.033 Employer-Provided Education Assistance $ 8 I.R.C. -

1.034 Q ualified Retirement Planning Services $ - I.R.C. -

1.035 D epartment of Defense Home owners Assistance Plan $ - I.R.C. -

1.039 Di scharge o f In de bte dne ss f or He al th Care Prof ess io nal s $ - I. R. C. -

1.040 Archer Medical Savings Accounts (exemption) $ - I.R.C. -

1.201 Capital Gains Deduction $ - M.G.L. -

1.202 Deduction of Capital Losses against Interest and Dividend Income $ - M.G.L. -

1.312 E xpensi ng of Certai n Capital Outl ays of Farme rs $ 0 I.R.C. -

1.401 Deduction for Employee Contributions to Social Security and Railroad Retirement System $ 300 M.G.L. 3,585,000

1.402 Deduction for Employee Contributions to Public Pension Plans $ - M.G.L. -

1.405 Dependents Exemption where the Child Earns Income $ - I .R.C. / M.G.L. -

1.406 Deduction for dependents under 12 $ 136 M.G.L. 510,000

1.407 Personal Exemption for Students Aged 19 or Over $ 8 I.R.C. / M.G.L. -1.408 Deduction for Adoption Fees $ 0 M.G.L. 1,000

1.409 Deduction for Business-Related Childcare Expenses $ 15 I.R.C. / M.G.L. 54,000

1.412 Non tax ati on of Ch ari tabl e Purpos e Income of Trus te es, Ex ecutors or Ad mi ni strato rs $ - M.G. L. -

1.413 Exemption of Interest on Savings in Massachusetts Banks $ 5 M.G.L. 505,000

1.414 Tuition Tax Deduction $ 36 M.G.L. 65,000

1.415 Charitable Contributions Tax Deduction $ - M.G.L. -

1.418 Deduction for Costs Involved in Unlawful Discrimination Suits $ - I.R.C. -

1.420 Archer Medical Savings Accounts (deduction) $ - I.R.C. -

1.421 Clean-Fuel Vehicles and Certain Refueling Prop. $ - I.R.C. -

1.422 Health Savings Accounts (deduction) $ 12 I.R.C. 10,000

1.423 Commuter Deduction $ 7 M.G.L. 225,000

1.601 Renewable Energy Source Credit $ 1 M.G.L. 2,000

1.602 C redi t for Removal of Lead Pai nt $ 3 M.G.L. 1,850

1.606 Septic System Repair Credit 13$ M.G.L. 11,000


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Personal Income Tax Expenditures: RetainedTE Budget Code Tax Expenditure Revenue Source Beneficiaries TE Budget Code Tax Expenditure Revenue Source Beneficiaries

Needs-Based Preempted by Federal Law

1. 404 A d di ti on al Ex em pt io n f or t he Bl in d $ 1 M. G. L. 10, 000 1.103 Exempt of Earnings on Stock Bonus Plans or Profit Sharing Trusts $ - M.G.L. -

1.008 Public assistance benefits 230$ M.G.L. -

1.403 Elderly $ 26 M.G.L. 495,000 Mirrors Corporate Code

1.609 Senior property tax circuit breaker $ 78 M.G.L. 82,000 1. 203 E xce ss N at ural Re so urce De pl et io n A ll ow an ce $ 0 I .R. C. -

1.204 Abandoned Building Renovation Deduction $ 4 M.G.L. -

Supports Working Families 1.301 Accelerated Depreciation on Rental Housing $ 20 I.R.C. -

1.411 R ent de ducti on $ 116 M. G. L. 770, 000 1.303 Ac celera ted D epreciat ion on Bui ldings (other tha n Renta l Housing) $ 6 I .R .C . -

1.425 Student loan interest, undergrad interest deduction $ 29 M.G.L. 345,000 1.304 ACRS for Equipment $ 47 I.R.C. -

1.605 Earned income credit $ 132 M.G.L. 1.305 Deduction for Excess First-Year Depreciation $ 8 I.R.C. -

1.306 Five-Year Amortization of Start-Up Cost $ 5 I.R.C. -

Retirement 1.308 Expensing of Exploration and Development Costs $ - I.R.C. -

1.005 Exemption of Annuity or Pension Pay ments to F iremen and Pol icemen $ - M.G.L. - 1.309 Expensing of Research and Development Expenditures in One Year $ 1 I.R.C. -

1.006 Pension and annuity distributions $ 280 M.G.L. - 1.310 Five-Year Amortization of Pollution Control Facilities $ - I.R.C. -

1.007 E xe mpti on of Rai lroad Re ti re me nt Be ne fi ts $ 5 M. G. L. - 1. 311 S e ve n Ye ar A mo rt izat io n f or Re fo re st at io n $ - I .R. C. -

1.009 Social Security benefits $ 839 M.G.L. 1,200,000 1.610 Historic Buildings Rehabilitation Credit 3$ M.G.L. 80

1.101 Employer contributions to private pension plans $ 959 I.R.C. - 1.611 Film Credit, Payroll and Production 3$ M.G.L. 50

1.104 Exemption of earnings on IRA and Keogh plans $ 326 M.G.L. - 1.613 Medical Device Credit 0$ M.G.L. 30

1.614 Dairy Farmer Tax Credit 0$ M.G.L. 200

Health 1.615 Conservation Land Tax Credit 2$ M.G.L. -

1.004 Employer contributions to health insurance $ 943 I.R.C. 1,200,000 1.607 Low Income Housing Tax Credit 2$ M.G.L. 220

1.424 Self-employed health insurance $ 44 I.R.C. 95,000 1.608 Brownfields Credit 3$ M.G.L. 60

1.410 Medical expenses $ 78 I.R.C. / M.G.L. 185,000 1.603 EDIP/Economic Opportunity Area Credit 3$ M.G.L. 280

1.426 Expenses of Human Organ Transplant $ 1 M.G.L. - 1.604 Credit for Employing Former Full-Employment Program Participants -$ M.G.L. 250

Public Safety and Armed Services Other

1.028 Exemption of Income Rec eived by Persons K il led in Mi l itary Act ion or Ter rorist Act iv ity $ - M.G.L. - 1.022 Nontaxation of capital gains at death $ 1,217 I.R.C. -

1. 036 S urv ivo r A nn ui ti es o f F al le n P ub li c S af et y O ff ice rs $ - I .R. C. - 1.023 Interest from Massachusetts obligations $ 99 M.G.L. -

1.037 S urvi vor Annui ti es of Fal le n A stronauts $ - I. R.C. - 1.102 Treatment of Incentive Stock Options $ - I.R.C. -

1. 038 D i sch arg e o f I nd eb te dn es s f or V ict ims o f Te rro ri sm $ - I .R. C. - 1.106 Nontaxation of capital gains at the time of gift $ 124 I.R.C. -

1.419 Business Exp of National Guard and Reserve Members $ - I.R.C. -

1.024 Exemption of benefits and allowances to armed forces personnel $ 24 I.R.C. -

1. 025 E xe mp ti on o f v et eran s' p en si on s, d is ab il it y co mp en sat io n, an d G. I. b en ef it s $ 30 I .R. C. 365, 000

1.026 Exemption of military disability pensions $ 1 I.R.C. -

1.027 Exemption of C ompensat ion to Ma ssac husetts-Based N onresident Mi l itary Personnel $ 9 M.G.L. 3,200

1.029 Exemption for retirement pay of the uniformed services $ 26 M.G.L. 19,000


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Corporate Tax Breaks

Within the category of computer systems design and related services, 29 other states tax

modifications to canned programs, and 14 other states tax custom programs

With the migration of software first to the web and now to the cloud, the line between

software (currently taxable) and computer services (not taxable) is becoming untenable,

and making these distinctions is difficult both for DOR and taxpayers

Tax Break Annual Revenue

FAS 109 76$

Security and Utility Corp. Classifications 83$

Sales Factor Sourcing for Services 35$

Custom modifications to software and other computer services 265$

gov. deval patrick's proposal for tax reform

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