Mass. Senate endorses tax cut

Senate lawmakers voted yesterday to lower the income tax rate from 5.3 percent to 5 percent if state spending on education and local aid is restored to levels last seen before the fiscal crisis of 2002.

The Senate unanimously passed a measure that would trigger a series of income tax rate reductions to 5 percent over three years beginning as soon as 2007. But the reductions would take effect only if state spending on education and other municipal services returns to 2002 levels, adjusted for inflation.

The Senate also approved a sales tax holiday for Aug. 12 and 13, a measure allowing cities and towns to reduce seniors' property taxes, another giving communities the power to increase the property tax exemption for veterans, a proposal allowing taxpayers to deduct commuter expenses from their income tax, and a tax credit for businesses that hire welfare recipients. The tax measures were all contained in amendments to the proposed budget for next year.

``This action dispels the notion the Democrats are averse to tax cuts," Senate President Robert E. Travaglini told the Globe. ``Senior taxes, the income tax rollback, veterans tax, sales tax holiday -- all in the first hour and a half."

Travaglini, minority leader Brian Lees, and Ways and Means chair Therese Murray said yesterday that because state tax revenues have been soaring, the state can afford the reduction in income tax revenue -- $517 million a year if the rollback is fully phased in.

``We have realized additional revenue that now makes this action defensible and reasonable, " said Travaglini.

Senate leaders also said they believe the state can restore local aid to sufficient levels for the tax cuts to kick in.

``We're not playing pretend, " said Travaglini. ``This is not an exercise that is disingenuous. I think the thresholds that we've set are achievable. We're getting close and potentially can get it."

In 2000, voters approved a gradual lowering of the income tax rate, which was 5.85 percent at the time, to 5 percent.

But in the depths of the state's fiscal crisis in 2002, the Legislature froze the rate at 5.3 percent. Last year, after repeated calls for tax relief by Governor Romney, the Senate passed a rollback measure, but the House balked.

Travaglini acknowledged that yesterday's action was ``in response to the administration's continued call for a tax cut," but denied lawmakers were seeking to exploit a politically popular issue in an election year, eliminating it as a Republican campaign weapon. Lieutenant Governor Kerry Healey and two of the three Democrats running for governor support lowering the income tax rate.

``Our actions are not driven by a political agenda," Travaglini said.

Eric Fehrnstrom, a spokesman for Romney, who included a rollback over two years in his most recent budget, praised the Senate for moving ``in the right direction," but said lawmakers didn't need to attach strings.

``We will end this year with yet another $1 billion-plus tax revenue surplus," said Fehrnstrom. ``We have the resources to both lower the tax rate and spend more on priorities like local aid and education."

Travaglini vowed to lobby the House to approve the measure. ``When the [Senate] vote is 39-0," he said, ``it sends a powerful message that the body is behind me."

But it was unclear whether the House would approve it.

James Eisenberg, chief of staff to House Ways and Means chairman Robert DeLeo, said House lawmakers are satisfied with the 2002 legislation now in effect that froze the income tax rate at 5.3 percent.

That legislation includes provisions to gradually ease the income tax burden on taxpayers starting in 2010, when the tax rate would begin to decline by .05 percent each year for six years until it was back to 5 percent. Those rollbacks would be triggered only if certain economic conditions are met.

``There are references to tax cuts in the House budget; most have to do with studying the issue," Eisenberg said. ``A lot of that was in recognition of the fact we have a tax-cut trigger in place on the books, and it is working the way it is supposed to work."

Cam Huff, research director of the Massachusetts Taxpayers Foundation, a business-backed government watchdog group, said any tax cut should be tied to the state's continued economic growth.

``State tax collections have been very strong this fiscal year," he said. ``This is good news. But the question is how long is it going to last and whether we're going to commit ourselves to tax cuts that could kick in just as things go sour. ``

Much of the current revenue growth is due to increases in capital gains taxes and other ``volatile" revenue sources, which could drop off again, Huff said.

Geoffrey Beckwith, executive director of the Massachusetts Municipal Association, which represents cities and towns, said the Senate amendment was acceptable because it kicks in only when local aid is restored.

``Restoring local aid first before consideration of a tax cut is in the right order," he said, adding that the state should devise a revenue-sharing plan to give communities a piece of state tax receipts, to reduce their reliance on property taxes.

``If the state just cut taxes now without restoring local aid, the fiscal mess at the local level would just continue," he said.

During the debate on the Senate floor, Republicans said they approved the measure with mixed feelings, preferring an immediate return to the 5 percent tax rate.

``It's a little bittersweet here," said Lees. ``This is in my mind a little bit of a chicken's way out. But it's better than nothing. It's a bittersweet moment, but we'll take any victory we can take."