Deval's bad timing
Deval Patrick unveils his second state budget today. He better have a Plan B in his back pocket.
If the governor has not noticed, a recession is upon us. Yesterday, there was wholesale panic in the markets, abroad and at home, which were both comforted and alarmed by a surprise interest rate cut of three-quarters of a point by the Federal Reserve. So worried about the danger ahead, Congress is suddenly making all kinds of strange bipartisan noises about putting together an aggressive stimulus package - and quickly. The discussion is all about tax rebates or grants for individuals and tax cuts for business.
Governor Patrick, by contrast, is proposing a large tax increase for business as part of his plan to close a billion-dollar budget gap. His timing could not be worse. A tax increase should be dead on arrival on Beacon Hill.
Last month, when all those decidedly mixed "Governor Patrick at Year One" analyses were being written, the administration was proclaiming its job-creation record as a major talking point. Now the numbers are in: Massachusetts added about 24,000 jobs in Patrick's first year, nearly a third fewer than the 35,000 jobs added in Mitt Romney's final year. The state lost 2,700 jobs in December, and the unemployment rate rose to 4.5 percent from 4.3 percent. "Mission Accomplished" it is not.
The economic news is grim everywhere; Massachusetts is no exception. Here is a sampling of headlines from Friday's Globe Business section, in case the governor was out of town on the campaign trail: "Slowing Mass. economy costs jobs" . . . "Soaring electricity prices leave state's manufacturers struggling" . . . "Bankruptcy looms for furniture chain" . . . "State seizes ice cream firm over back taxes," and insult to injury, "Fidelity grows in Albuquerque."
Patrick's plan would raise taxes on business by nearly $300 million in the next fiscal year and $490 million a year after that. Are you sure this is the moment, governor?
One of Patrick's earliest initiatives was to target the closing of so-called corporate tax loopholes. Although the economy has deteriorated considerably since then, the governor remains right on the policy. As now written, the tax codes allow big multistate corporations to game the system, shifting profits to low-tax states like Delaware.
More than 20 states now use what is called combined reporting to counter this income-shifting game; Massachusetts should do the same. The changes would make the tax code simpler and fairer, both good things. And Massachusetts could do this without raising taxes on business by significantly lowering the state's high (9.5 percent) corporate tax rate, thus keeping the changes revenue neutral.
That, however, does not suit Patrick's needs. His transparent goal is not to make the tax system fairer and simpler, but rather to raise new revenue to pay for his laundry list of new initiatives, from increasing spending on education by $368 million to ending homelessness to upgrading the state parks - all worthy goals. I'd like a new car, too, but I can't afford it right now.
Last year, House Speaker Sal DiMasi made short work of Patrick's business tax hikes by shipping them off to a study commission. A year later, with a recession of uncertain depth and duration upon us, DiMasi is looking smart. These proposals could benefit from another year's study in North Adams or beyond. Said DiMasi yesterday: "What burden do we put on business during a recession?"
Governor Patrick has an ambitious agenda. Unfortunately, right now he looks like a governor more suited for the late '90s, when all trees grew to the sky, than the challenging times we are facing.
The best executives understand well the wisdom of both cutting and investing in a downturn. But they also understand you raise prices in the midst of a recession at your peril. The same could be said for raising taxes.
Steve Bailey is a Globe columnist. He can be reached at bailey@globe.com or at 617-929-2902. 