massachusetts state budget distribution of spending

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Massachusetts State Budget

Distribution of Spending

Where Does the Money Go?

Fiscal Year 2003 • Total Spending: $23.2 billion

• Every year, the Governor and the Massachusetts Legislature decide how tospend the money in the budget.

• The largest categories of state spending are education, Medicaid, humanservices, public safety, debt service, and aid to cities and towns.(See Appendix for details of spending in these categories.)

Education23.0%

Medicaid23.6%

Human Services19.4%

PublicSafety8.5%

DebtService6.3%

Local Aidto Cities& Towns

5.6%

Other13.6%

Examples:• Environmental programs• Pensions• Running the government

Interest Due$

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Where Does the Money Come From?

Fiscal Year 2003

Massachusetts State Budget

Distribution of Revenue

Taxes68.5%

Miscellaneous& Charges

12.5%

Federal Aid18.9%

Examples:• Driver’s license fees• Lottery• College charges

$

PAY STUB

Earnings $1,386.54

TAXES:Fed. Withholding -154.00

Social Security - 85.96

Medicare -20.11

Massachusetts Withholding -62.23

NET PAY $1,064.24

Income Taxes

Special SalesSales Taxes

CorporateTaxes

• To pay for services such as schools, health care, public safety, transportation, andsocial services, the state collects revenue from a variety of sources. Over two-thirdsof the revenue comes from individual and corporate taxes. The next largest portioncomes from federal aid, and the remainder from a variety of other charges, such asthe lottery, drivers license and professional fees, and college charges.(See Appendix for a breakdown of the “Taxes” category.)


Types of Stateand Local Taxes

★ Income

★ Sales

★ Special Sales

★ Corporate

★ Property

PAY STUB

Earnings $1,386.54

TAXES:Fed. Withholding -154.00

Social Security - 85.96

Medicare -20.11

Massachusetts Withholding -62.23

NET PAY $1,064.24


The Massachusetts Budgetis $1.4 Billion Short

BudgetShortfall:

$1.4 billion

TotalSpending:

$23.2 billion

{

• When the state takes in less money (revenue) than it spends, it’s in abudget “deficit.”

• As anyone knows from trying to balance a family budget or checkbook,when there’s a deficit, there are basically three main choices on what todo: 1) raise more money, 2) cut spending, or 3) borrow money.


Some Big Budget BustersOver the Last 10 Years

1992:Mass. Estatetax reduced

$253 million

1995:Raytheon

Corp. tax cut$61 million

1996:Fidelity

Corp. tax cut$130 million

1998:Dividend &

Interest tax cut$130 million

2000:Income tax cut$700 million(once phased in)

Total Annual Impactof these tax cuts:

$1.43 billion

Source: Massachusetts Budget & Policy Center

• Over the last 10 years, theLegislature passed a numberof tax cuts that take hugechunks of money out of thebudget each year. Some ofthese tax cuts benefitted lowand middle-income peopleand we support those cuts.But most benefit only bigbusinesses and wealthypeople. Low and middle-income people get almostnothing from these tax cuts.

• This “give-away” to wealthypeople and big businessdrains huge amounts ofmoney out of the budget (the“bucket”) that should be inthere.

• Next year, officials think thestate will bring in $1.4 billionless money than it needs topay for the budget.

• Over the last 20 years, Massachusetts reduced its tax“bite” more than any state in the nation except Alaska.Between 1979 and 1999, state and local taxes inMassachusetts fell by more than 20% percent. Incontrast, the national average rose 3% percent during thesame period. While nearly all states were increasing thetax “bite” relative to income, Massachusetts experiencedthe steepest drop in the nation, other than Alaska. We’rehardly “Taxachusetts” anymore!


Who Gets Hurt fromBudget Cuts?

Child Care School Programs

Dental Care Prescription Drugs

Affordable HousingLayoffs in Depts. of MentalHealth, Mental Retardation,

and Social Services


Middle and Low-Income Massachusetts Families Didn’t Share in the 1990s Boom

Source: Center on Budget and Policy Priorities and Economic Policy Institute, Pulling Apart, A State-By State Analysis of IncomeTrends, Jan. 18, 2000. Researchers used three-year averages to enlarge the sample size, resulting in more valid data.

Change in Income in MassachusettsLate 1980s (1988-1990) toLate 1990s (1998-2000)

20%

15%

10%

5%

-5%

-10%

up to$26,200

$26,200 -$49,800

$49,800 -$72,200

$72,200 -$106,900

$106,900and up

$188,000and up

Bottom20%

Second20%

Middle20%

Fourth20%

Top20%

Top5%

-7% -7%

-0%

+4%

+14%

+18%

0%

• During the last decade of economic growth (the late 1980s to the late 1990s), therewas a lot of growth in income, but the distribution of that growth was very uneven.The wealthiest 20% of Massachusetts families did very well while low and middleincome families lost income or stayed the same. The biggest winners were thewealthiest 5%.


Middle and Low-Income Massachusetts Families Have a Higher Tax RateThan Wealthy Families

Percent of Income PaidState and Local Taxes

in Massachusetts

Source: Institute on Taxation and Economic Policy

Bottom20%

Second20%

Middle20%

Fourth20%

Top20%

Top5%

Top1%

11.6%

10.7% 10.5% 10.3%9.9%

9.3%

8.7%

• Lower income people pay a higher percentage of their income in state and localtaxes than high-income people do. In other words, Massachusetts places a greatertax burden on low and middle-income families than it does on wealthy families.This is pretty shocking since the previous chart showed that the wealthiest 20%were the big winners over the past decade.


Types ofTax Systems

Regressive:Washington

When less well-off people paya higher percentage of theirincome in tax than more well-off people do, it’s called a“regressive” tax.

Flat:Oregon

When all people pay roughlythe same percentage of tax ontheir income, it’s called a“flat” tax.

Progressive:Delaware

When better-off people pay ahigher percentage of theirincome in tax than less well-off people do, it’s called a“progressive” tax.

14%12%10%

8%6%4%2%0%

Bottom 20% Middle 20% Top 20%

14%

12%

10%

8%

6%

4%

2%

0%

14%

12%

10%

8%

6%

4%

2%

0%



16%18% 17%

10%

4%

11% 10% 10%

6% 7% 8%


Percent of Income Paid inMass. State and Local Taxes –

Excluding the Income Tax

Source: Institute on Taxation and Economic Policy

The Tax Burden is Reduced for Wealthy Families Far Morethan for Middle and Low-Income Families

when the Income Tax is Excluded

• The state would have to cut at least $9 billion worth of programs, services and jobs fromeducation, health care, police & fire protection, the environment, roads and publictransportation. EVERYTHING we care about would be cut, because there’s no way to cut over$9 billion without major damage to virtually every program.

• Not only would low and middle income people lose many of the programs and services they careabout because of all the budget cuts, but they would also shoulder four times more of the taxburden than the wealthiest 1%.

Bottom20%

Second20%

Middle20%

Fourth20%

Top20%

Top5%

Top1%

8.6%

6.2%

5.6%5.2%

4.5%

3.7%

2.7%

when the Income Tax is Excluded


★ Massive budget shortfall.

★ In the 1990s, Massachusettsgave billions of dollars towealthy people andcorporations in tax cuts.

★ Wealthy people still pay asmaller percentage ofincome in state and localtaxes than do middle andlow-income people.

Reviewingthe Key Points


★ Grassroots organizing

★ Lobbying legislators

★ Public education:workshops

★ “Your Tax Cuts at Work”Sticker Campaign

What is the “Stop theCuts!” Campaign Doing?

• Because of this work and the efforts of all the people who became active on thisissue, we got a progressive tax package passed that prevented over $1 billion in cuts.This is a HUGE accomplishment and shows that good things can happen whenpeople organize together to make change!


The Tax Package Passedby the Massachusetts

Legislature

• The main thing to notice is that three out of the five proposals are progressive,meaning that they fall more heavily on people who can afford to pay.

• Unlike most other states, Massachusetts did not use many gimmicks and accountingtricks to “solve” its budget problems. We used a mix of raising taxes, cuttingspending, and borrowing from the rainy day fund to close the budget shortfall.

• Despite this large tax package, which raised $1.7 billion, cuts were also made toimportant programs and services because the budget gap was $2.6 billion. These cutsare hurting many people and we would have liked to see more revenue raised so thatthere would have been NO cuts.

Tax Package

Item Value in millions of dollars *

(in 2003)

✓ Tax Capital Gains the same as wages ..........................$240

✓ Delay the Income Tax Rollback .................................$230

✓ Raise the Cigarette Tax 75¢ a pack ............................ $150

Eliminate the Charitable Deduction ...............................$185

Cut the Personal Exemption by 25% ............................. $258

TOTAL: $1.063 billion

* These are estimates provided by the House Taxation Committee

✓ Supported by the “Stop the Cuts!” Coalition


★ Join the “Stop the Cuts!”Coalition

★ Call and write yourlegislators

★ Be sure to include themessage “Raise Revenue!”when advocating foryour issue

★ Become a workshop trainer

★ Write letters to the editor

What You Can Do

The MassachusettsBudget Crisis:

Who Hurts? Who Pays?

A Workshop produced for the “Stop the Cuts!” Campaign by

www.faireconomy.org

September 2002 PARTICIPANT PACKET

and

Appendix

1. Breakdown of FY 2002 State Spending (from Chart 1)

2. Breakdown of FY 2002 State Revenue Sources (from Chart 2)

3. Total State and Local Taxes as a Share of Personal Income (1979 - 1999)

4. Big Budget Busters Explained (from Chart 5)

Massachusetts State Budget FY 2002- Distribution of Spending

Spending in Human Services Percent of State SpendingDept of Mental Retardation 4.3%

Dept. of Mental Health 2.7%

Dept. of Social Services 2.6%

Cash Assistance 2.4%

Other Health and Human Services programs 2.4%

Dept. of Public Health 2.3%

Child Care 1.8%

Elder Affairs 0.8%

Senior Pharmacy Program 0.4%

Spending in the “Other” categoryPensions 4.2%

Administrative costs 3.3%

Group Health Insurance 3.2%

Environmental Affairs 1.0%

Transportation 0.6%

Housing & Community Development 0.5%

Labor & Workforce Development 0.3%

Consumer Affairs 0.2%

Attorney General 0.2%

Economic Development 0.1%

Examples of Public Safety programsState Police Prisons system

Court system District

Attorney General’s office

Executive Office of Public Safety

Local Aid to Cities and TownsMoney that goes to cities and towns that they can spend freely (some of this money

comes from the lottery)

Massachusetts State Budget FY 2002 - Sources of Revenue

Breakdown of Taxes Percent of State RevenueIncome tax (individual and corporate) 59.0%

Sales tax 21.0%

Gas tax 4.7%

Tobacco tax 1.8%

Estate tax 1.3%

Room occupancy tax 0.9%

Deeds tax 0.8%

Alcohol tax 0.4%

Total State and Local Taxes, FY 1979 and FY 1999

(as a share of personal income)

FY 1979 FY 1999

RANK STATE SHARE OF PERSONAL INCOME RANK STATE SHARE OF PERSONAL INCOME

1 Alaska 20.2% 1 New York 13.8%2 New York 14.8% 2 Maine 13.6%3 Wyoming 13.2% 3 Wisconsin 12.4%4 Massachusetts 13.2% 4 Hawaii 12.2%5 Minnesota 12.4% 5 Minnesota 12.0%6 Hawaii 12.0% 6 New Mexico 12.0%7 Vermont 11.9% 7 Vermont 11.9%8 Wisconsin 11.8% 8 Connecticut 11.8%9 Arizona 11.8% 9 West Virginia 11.5%10 Rhode Island 11.6% 10 North Dakota 11.4%11 New Mexico 11.2% 11 Utah 11.4%12 Montana 11.2% 12 Rhode Island 11.3%13 Delaware 11.1% 13 New Jersey 11.2%14 Maine 11.0% 14 Wyoming 11.1%15 Michigan 11.0% 15 Delaware 11.0%16 Maryland 10.9% 16 California 11.0%17 New Jersey 10.7% 17 Arkansas 11.0%18 Louisiana 10.7% 18 Idaho 11.0%19 Utah 10.7% 19 Michigan 10.9%20 Nebraska 10.7% 20 Kentucky 10.9%21 Oregon 10.6% 21 Mississippi 10.9%22 Colorado 10.6% 22 Washington 10.8%23 West Virginia 10.6% 23 Ohio 10.8%— U.S. TOTAL 10.5% — US TOTAL 10.8%24 Washington 10.5% 24 Montana 10.7%25 Pennsylvania 10.4% 25 Louisiana 10.7%26 Nevada 10.3% 26 Iowa 10.6%27 Kansas 10.2% 27 Kansas 10.6%28 California 10.2% 28 Nebraska 10.5%29 Iowa 10.1% 29 Massachusetts 10.5%30 Illinois 10.1% 30 Arizona 10.5%31 Mississippi 10.0% 31 Pennsylvania 10.5%32 Kentucky 9.9% 32 Georgia 10.4%33 Idaho 9.9% 33 Oklahoma 10.3%34 Connecticut 9.9% 34 Illinois 10.3%35 Georgia 9.8% 35 North Carolina 10.3%36 South Carolina 9.7% 36 Indiana 10.2%37 North Carolina 9.7% 37 South Carolina 10.2%38 South Dakota 9.6% 38 Maryland 10.2%39 Virginia 9.4% 39 Alaska 10.1%40 Oklahoma 9.3% 40 Missouri 9.9%41 North Dakota 9.2% 41 Colorado 9.9%42 Tennessee 8.9% 42 Virginia 9.8%43 Missouri 8.8% 43 Oregon 9.8%44 Indiana 8.8% 44 Florida 9.8%45 Florida 8.8% 45 Nevada 9.8%46 Alabama 8.7% 46 Texas 9.3%47 Ohio 8.7% 47 South Dakota 9.3%48 New Hampshire 8.6% 48 Alabama 8.8%49 Arkansas 8.4% 49 Tennessee 8.6%50 Texas 8.4% 50 New Hampshire 8.6%

Big Budget Busters Explained

Estate Tax CutAn estate tax is a tax on the property of a person when he or she dies. Massachusetts used to have a stateestate tax beyond the amount that could be deducted from the federal estate tax, meaning that estate taxeswere higher here than in most states. The estate tax cut in 1992 lowered the state’s estate tax to the levelthat would simply be offset by the federal deduction.

Dividend & Interest Tax CutMassachusetts used to tax income from dividends and interest from out-of-state banks at a rate of 12percent. This rate was almost twice the tax rate on income from a job (then 5.85%). In 1998Massachusetts voters passed a ballot initiative to lower the dividend and interest tax rate to the same rateas income.

Raytheon and Fidelity Tax Cuts (officially called the “Single Sales Factor forManufacturers” and the “Single Sales Factor for Mutual Fund Companies”)

These two laws changed the way corporate taxes are calculated to lower taxes dramatically on companiesthat are based in Massachusetts, but have substantial presence in other states or countries. (To be precise,the laws changed the double-weighted sales factor apportionment formula to a single-weighted sales factorformula.) The reason these tax cuts are referred to as the “Raytheon” and “Fidelity” tax cuts is becauseRaytheon was the lead lobbyist and beneficiary of the cut for manufacturers and Fidelity was the leadlobbyist and beneficiary of the cut for mutual fund companies.

Income Tax CutIn 2000, Massachusetts voters passed a ballot initiative to gradually reduce the personal income tax from5.85% to 5.6% in 2001; 5.3%; in 2002; and finally 5.0% in 2003. Working and middle-income peoplereceive only a fraction of the benefit that wealthy people receive from this tax cut.

The MassachusettsBudget Crisis:

Who Hurts? Who Pays?

A Workshop produced for the “Stop the Cuts!” Campaign by

www.faireconomy.org

Participant PacketSeptember 2002

massachusetts state budget distribution of spending

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