Governor Deval Patrick proposes $34.8b state budget, boosted by $1.9b tax increase

By Michael Levenson and Noah Bierman, Globe Staff

Governor Deval Patrick today proposed a $34.8 billion state budget that increases funds for transportation and education, as well as aid to cities and towns, while at the same time calling for a major hike in taxes.

Gov. Patrick introduced the budget with Lt. Gov. Murray by his side (Cynthia Needham/Globe Staff)

Patrick said the vast majority of programs would not see cuts under his budget, though some of the increases proposed would not satisfy the programs’ supporters.

The Patrick administration also revealed today that a $1.9 billion package of income tax increases and other revenue-raising measures the governor unveiled last week included new or higher taxes on candy, soda, and cigarettes.

The goal of the entire plan, Patrick said, was to boost investment in areas that, he said, are important to the state’s economy.

“It’s a growth budget,” he said.

Michael Widmer, president of the Massachusetts Taxpayers Foundation, a business-backed budget watchdog group, said of the ambitious tax plans, “He’s really rolled the dice. This is a very aggressive budget.”

Patrick unveiled his plans for a major tax hike last week, in his State of the Commonwealth speech. The proposal, if approved, would raise taxes on about 50 percent of residents, beginning in January 2014, with the biggest increases on upper-income earners.

The heart of the plan would hike the income tax from 5.25 percent to 6.25 percent while cutting the sales tax from 6.25 percent to 4.5 percent. It would also double the personal income tax exemption, eliminate 45 income tax deductions (for T passes, college scholarships, and dependents under 12, among other items) and tie the gas tax to inflation, ensuring gradual increases at the pump. Three corporate tax breaks would be eliminated. MBTA fares, Turnpike tolls, and Registry fees would also increase periodically.

Patrick said the plan was aimed at making the tax code simpler, fairer and more progressive, while raising enough money to put the financially ailing transportation system on a path toward long-term stability.

He said the people left out in the frigid weather today due to a shutdown of the Green Line “totally get” the need for more transportation spending.

The increases on candy, soda, and cigarettes were also in the proposal outlined last week but weren’t highlighted at the time by the administration.

Critics have said the taxes would make an already high-cost state even costlier and raise taxes for spending on a smorgasbord of transportation projects beyond what is necessary to fix the debt-ridden MBTA.

Taxes will dominate debate on Beacon Hill this year, but will not be the only point of contention. The state faces a significant budget deficit of $1.2 billion, according to the Massachusetts Budget and Policy Center, a liberal research group. Some estimates have put the gap a bit lower, closer to $1 billion. The gap shows how Massachusetts has not recovered fully from the recession and its aftermath, which stunted growth in tax collections.

Over the past several years, Patrick and the Legislature have papered over budget gaps in part by taking money from the state’s emergency reserve fund and other one-time sources. So far this year, Patrick has withdrawn $350 million from the “rainy day fund,” and has asked for legislative authority to withdraw another $200 million, which would leave $1.2 billion in the fund.

Patrick’s newest budget would take another $400 million from the fund. But money added back in would leave it with $1 billion by July 2014, which state budget analysts contend is a healthier balance than most states have.

Patrick’s budget is likely to change significantly before it becomes law in time to start the new budget year on July 1. Last year, he proposed many initiatives that the House and Senate scuttled when they released and debated their own versions of the budget. The House and Senate ultimately agree on a compromise budget, which is then sent to the governor’s desk for his signature.

Among those Patrick ideas that were jettisoned last year were plans to close a state prison and merge the Parole Board with the Probation Department. Patrick also sought $260 million in new revenues last year, including new or higher taxes on candy, soda and cigarettes, none of which made it into the final $32.2 billion budget that he signed.

This year, the political debate around taxes has shifted. With lawmakers not facing elections in November, House and Senate leaders have indicated they will consider at least some tax increases, though possibly not at the level Patrick has proposed.