Give back the money
Three years ago the Legislature made a mistake. Now it is preparing to bill 40,000 taxpayers for that mistake.
Repeat after me: You do not retroactively tax people for income they realized three years ago. And you especially do not tax people three years later for a mistake you made. But that is precisely where our Legislature is headed.
The quandary the Legislature faces as a result of an expensive court ruling on capital gains taxes is entirely of its own making. The Legislature, desperate for revenue in 2002, tried to change the rules in the middle of the year, raising long-term capital gains taxes to 5.3 percent in place of a stepped system that taxed profits from zero to 5 percent, depending on how long an investor held the asset. The change was effective May 1, 2002.
Taxpayers sued and the Supreme Judicial Court agreed that the state could not change the rates in mid-year. The Legislature was left with two choices: Either make January 2002 the effective date for the new rates and collect as much as $205 million in unpaid taxes, or move the start date to January 2003 and refund $250 million already paid by 157,000 taxpayers.
It is simply not in the DNA of most politicians to willingly give back money to taxpayers.
The governor, Mitt Romney, has pushed from the beginning to swallow hard and rebate the money. He is dead right on this. Surging tax revenues -- September was a record month, and the state's rainy day fund now stands near a record $1.7 billion -- have made his case all the more compelling.
Michael Widmer, president of the Massachusetts Taxpayers Foundation, opposes Romney's call for an income tax cut, but agrees with him on the capital gains issue: ''There is broad agreement it is not appropriate to tax retroactively."
The Democratic Legislature has been willing to do everything but the right thing. One compromise would have made the tax hike retroactive to January 2002, but grant an amnesty for the first four months of the year. The court rejected that plan, too. Plan B, now embedded in legislation in the House and the Senate, would try to ease the pain by exempting about 80,000 taxpayers who owe less than $100 in taxes. The plan would also waive any interest and penalties on unpaid taxes. Imagine: Our legislators are going to let you forgo penalties and interest on taxes you didn't know you owed!
The state Revenue Department says the average tax owed will be between $3,725 and $5,000. That $5,000 is just about what Mark Bernardin of Andover estimates he will owe. The apologists say the rich can afford to pay; Bernardin, like a lot of us, doesn't feel a bit rich.
Bernardin, a lawyer, has tightened his belt and has been a stay-at-home dad to two kids, ages 2 and 8, as he works on a book. His wife is a social worker; he shares a two-family house with his mother. He sold a pair of two-family homes he owned with his brother in the first half of 2002, and is fuming about the unexpected tax bill he will owe. ''We didn't put it in the mattress," he says. ''We spent it on other things."
''I have never heard anyone say the retroactive tax is fair. They are just saying they want the money," says Bernardin, 41, a lifelong Democrat. ''That is no good way to run the government."
Returning $250 million in taxes will be no easy matter; tight times have been hard on state and local services. But this is not 2002, either. We can afford to do the right thing. Romney should make the Legislature override his veto, if need be.
Repeat after me: You do not retroactively tax people for income they realized three years ago. And you especially do not tax people three years later for a mistake you made.
Steve Bailey is a Globe columnist. He can be reached at bailey@globe.com or at 617-929-2902. 
