After two decades of waiting, Massachusetts residents are finally getting the flat 5% income tax rate they voted for — but some advocates who pushed for the reduction didn’t live to see their work come to fruition.
“There are a lot of taxpayers who worked on that campaign who never saw the income tax reach 5 percent, as the voters mandated 20 years ago,” Director of the Citizens for Limited Taxation Chip Ford said. “Finally, it’s going to go back to 5 percent as promised. I’d say too little, too late, but that’s what you get from state government.”
The individual income tax rate will be reduced from 5.05% to 5% effective Jan. 1, Mass. Governor Charlie Baker’s Administration announced Friday. Voters approved a slash in the tax rate from 5.9% to 5% in 2000, but the Mass. Legislature decided to reduce the rate gradually based on certain economic triggers.
Ford and Barbara Anderson, a longtime anti-tax activist, cultivated an effort to get the question on the ballot through their nonprofit about 30 years ago. He lamented that Anderson, his partner of 20 years who died of leukemia in 2016, and many others involved in the advocacy work didn’t live to see the fruits of their labor.
This upcoming tax cut represents the conclusion of the statutory process laid out in a 2002 state law to lower the income tax rate to 5% based on certain state revenue milestones, and will return $88 million in Fiscal Year 2020 and approximately $185 million in Fiscal Year 2021 to taxpayers.
“It’s obviously way overdue, but it should be celebrated any time in Massachusetts that the taxpayers get to keep more of their hard-earned money,” MassFiscal Alliance Spokesman Paul Craney said. “A lot of people, especially around Jan. 1, are going to be feeling a pinch in their wallet and checking account because of the holidays so the fact that taxpayers are able to keep more of their money, even if it may not be as much as they want, is a step in right direction.”
The type of income that will see the reduction includes wages, salary, and many other forms of income, including self-employment income; business, professional and farm income; S corporation distributions; and rental income from personal property. The rate also applies to several other income categories, including interest and dividends and most long-term capital gains.
“It took almost two decades, but the people’s voice has finally been heard,” Mary Connaughton, director of Government Transparency and Finance and Administration at the Pioneer Institute said.
Mass. lawmakers are still considering various tax hikes and fees, however, despite the state collecting a $1 billion surplus after experiencing unprecedented revenue growth in the most recent fiscal year.
“If these politicians have their way, the cost of living and doing business in Massachusetts will increase year after year,” Craney said, “but for the time being on Jan. 1 when this goes into effect, it will be at last one chance for celebration. Voters finally have the relief they voted for in 2000.”