Patrick eyes corporate tax changes
Would follow Romney's path for revenues
Governor Deval L. Patrick, facing a daunting challenge as he tries to balance his first state budget, is looking hard at the same solution that his predecessor, Mitt Romney, employed in the early difficult fiscal days of his administration: declaring war on corporate ‘‘tax loopholes.’’
Two senior Patrick officials said that the administration is looking seriously at a wide range of corporate tax changes to help close what is now projected to be a $1.3 billion budget gap for the coming fiscal year, which begins July 1. One of the officials said that the tax changes could raise between $350 million and $400 million annually.
The Patrick officials, who spoke on condition they not be identified because the proposals aren’t public yet, said no final decisions have been made on which of the changes to incorporate into Patrick’s upcoming budget. The budget is due to the Legislature by the end of the month, and all the changes would require its approval.
If Patrick decides to make the tax changes a centerpiece of his new budget, it is likely to create an uproar in the state’s business community, which will consider them to be tax increases. The definition of tax loopholes is in the eye of the beholder: People trying to close them say they are addressing unx fairness, while those hurt by any changes say they are simply higher taxes.
Four years ago, with Massachusetts facing a $3 billion deficit and struggling economy, Romney avoided raising income or other broad-based taxes by aggressively going after what he described as tax loopholes and by raising fees. In all, three rounds of corporate tax changes produced about $400 million in new revenue annually, according to state officials. Eventually, Romney pulled back on some $85 million of corporate tax changes when the business community objected loudly and the economy began improving.
Now Patrick finds himself in a similar, if somewhat less severe, situation. And rather than raise broad-based taxes he has asked his revenue department to identify potential corporate tax changes. Revenue Commissioner Alan LeBovidge, the man behind Romney’s campaign to close tax loopholes, has targeted 10 possible tax changes for Patrick’s consideration. Several of them are the changes that Romney first proposed, and then rejected, two years ago.
During the campaign Patrick talked about the need to close ‘‘tax loopholes,’’ including three of the changes that Romney initially proposed but then rejected. Patrick, on his campaign website, estimated that those changes could raise about $85 million in new revenue. But now, with the budget outlook tighter than expected, Patrick is looking for bigger opportunities.
The tax-law changes under consideration are complicated. The Patrick officials said two changes would produce most of the new revenue:
Other tax changes under consideration would raise less money. One proposal would tax the non-insurance business of insurance companies at the same rates that other businesses are taxed, eliminating the special treatment insurers are now allowed. Another proposal would prevent sellers of real estate from avoiding the deeds excise tax by placing the property in a partnership and then selling an interest in that entity. Another proposal would extend the state’s sales tax to digital music, photographs, and printed materials in the same way the state did on software three years ago.
Patrick spokesman Kyle Sullivan would only say, ‘‘It is the governor’s intention to take on the modernizing of the tax code during his administration.’’ But the governor’s plans drew immediate praise and criticism.
Michael Widmer, president of the Massachusetts Taxpayers Foundation, a business-funded fiscal watchdog, acknowledged ‘‘the budget situation is very challenging,’’ but said it ‘‘is not in the state’s interest to close a short-term budget gap at the expense of long-term economic growth.’’ Added Widmer: ‘‘Many of these changes are changes of tax policy under the guise of loophole changes. These are purely revenue changes to make up for the budget shortfall, which is exactly what they were under Romney ..... This sends a very bad signal to the business community.’’
Noah Berger, executive director of the liberal Massachusetts Budget and Policy Center, disagreed. ‘‘It is hard to think of a less efficient use of economic development resources than keeping open costly loopholes, which allow companies that adopt aggressive tax avoidance strategies to avoid paying taxes that others have to pay,’’ he said. ‘‘Does anyone really believe that keeping open tax loopholes is a better long-term investment in our economy than providing workforce training and education so that Massachusetts will have the skilled and educated people that employers want to hire?’’
The Patrick official warned that the $350 million to $400 million estimate is an annualized number, and not all of that would be available for the coming fiscal year even if all the changes make it through the Legislature. Much of the budget gap will have to be dealt with through cuts, he said, to make up for portions of the budget such as healthcare that continue to grow at three times the rate of inflation.
Steve Bailey can be reached at bailey@globe.com.
© Copyright 2007 Globe Newspaper Company.
