Thursday, 4:30 PM
Taxpayers may not receive higher exemption
By Andrea Estes, GLOBE STAFF
For the first time in four years, Massachusetts taxpayers will not receive a higher personal tax exemption in 2008 under current projections, a sign of a slowing economy that could force difficult decisions on Beacon Hill this spring.
Department of Revenue officials announced at a legislative hearing Tuesday that a freeze in the personal income tax exemption was likely. At the hearing, several economists predicted minimal growth in state tax collections next year, because of stagnant corporate profits and capital gains.
An increase in the exemption, which is triggered the year after a rise in tax revenue of at least 2.5 percent after inflation, would have saved individuals $15 and couples $29 and cost the state about $60 million, according to an agency spokeswoman. Taxpayers have seen an increase for the last three years. Couples can now deduct $7,700 and individuals can deduct $3,850.
"We’re assuming it’s not likely the exemption will kick in," said Revenue Department spokeswoman Jennifer Parent.
Also lagging are lottery revenues, which officials confirmed are down 2 percent in the current fiscal year from last year. The lottery provides more than $900 million to cities and towns.
The economists appeared before a joint hearing of the Senate and House Committees on Ways and Means to help lawmakers arrive at a consensus on revenue estimates to be used in the next round of budget negotiations.
They offered varying revenue predictions for the upcoming fiscal year, which begins July 1, ranging from a low of 1.8 percent from Department of Revenue tax analysts to 6.4 percent from the Beacon Hill institute, a conservative think tank.
The most pessimistic analysts said the state is looking at a deficit of up to $1.5 billion -- a gap that will make it difficult for the new governor to keep costly campaign promises, such as hiring 1,000 new police officers and expanding full-day kindergarten.
"I think it would be an achievement if this administration and this Legislature are able to achieve a balanced budget without gimmicks, without drawing on reserves and maintaining the present level of services," said Michael Widmer, president of the Massachusetts Taxpayers Foundation, which is predicting revenue growth next year of only 3 percent, compared to an estimated 4.2 percent this fiscal year and an actual 8.2 percent increase the previous year. Costs are expected to rise much more, he said.
But Governor Deval Patrick, Widmer said, will be hard-pressed to spend money on new programs or restore local aid to provide property tax relief for homeowners, a frequent campaign pledge. "The very best they can do would be to put a down payment on some initiatives -- take initial steps and phase them in over several years," he said.
After the hearing, Patrick’s top budget aide, Administration and Finance Secretary Leslie Kirwan, said the governor’s campaign pledge to cut $735 million annually from the budget in waste and inefficiencies would not be realized immediately.
"As the governor pointed out," she said, "he’s looking at that over a longer period of time. We’re just beginning that work with the agencies."
Patrick recently said he does not intend to complete new initiatives all in his first year. He said he will phase in the projects. But Tuesday was the first time his administration has said it would not quickly cut $735 million from the budget.
