BOSTON—House Speaker Salvatore DiMasi proposed a 26 percent reduction in the state's corporate tax rate on Tuesday, while endorsing Gov. Deval Patrick's plan to balance the budget by closing business tax loopholes.
DiMasi, who a year ago called Patrick's plan to close the tax loopholes a "catalyst to reduce jobs," acknowledged Tuesday that the state needs new revenues to close a $1.3 billion budget gap, and softened the blow to businesses by offering them a tax cut twice as big as that Patrick unveiled last month with his $28.2 billion budget.
"I wouldn't say I changed my position," he said at a news conference. "I've always said that all of this has to be balanced with the revenues needed to balance our budget. There's a balancing test here. Obviously this is a very difficult fiscal year. We were looking for revenue sources, at the same time trying to make this corporate tax (rate) fair, more predictable."
DiMasi's plan to close the gap includes a $1 per pack increase in the state's cigarette tax, as well as spending $427 million from the state's "rainy day fund" -- including a $229 million withdrawal and the diversion of $198 in scheduled payments and interest intended to bolster the fund. DiMasi called for $100 million in cuts, and rejected Patrick's proposed use of would-be revenues from casino licensing.
DiMasi's loophole-closing plan would generate $289 million in new revenue, offset by a reduction of $85 million in the corporate tax rate in 2009, for a net gain of $204 million.
Patrick, who has sparred with DiMasi on a variety of issues during his first year in office, downplayed talk of a political victory.
"It's a step forward for tax fairness," he said. "I don't think this is about personal victories, it's about us being responsible and responsive both to the interests of the people of Massachusetts above all but also to proposals that we are putting forward. The point is we're all collaborating."
The governor hopes the eventual rate cut will be closer to his proposed 13 percent. DiMasi's plan would reduce the current rate of 9.5 percent to 7 percent by 2011. Patrick proposed a reduction to 8.3 percent by 2012.
"There are some very positive things in what the speaker put forward," said Paul Guzzi, president of the Greater Boston Chamber of Commerce.
Guzzi also applauded DiMasi's announcement that the House on Wednesday would vote to cancel a scheduled increase in unemployment insurance rates, which businesses say will save them $150 million.
Michael Widmer, president of the business-backed Massachusetts Taxpayers Foundation, said DiMasi's budget plan will create more jobs than Patrick's because the larger tax cut makes the state more attractive for businesses to expand in Massachusetts.
"Everybody can say hallelujah," he said. "The governor can declare a win, at the same time the business community can as well."
The tax cut would stimulate the economy, DiMasi said.
"They can reinvest it in our economy," he said. "This is in tune with what economists say we should be doing during this downturn in our economy to avoid a recession."
The cigarette tax hike would raise $152 million, which DiMasi says would be spent on the state's mandatory health insurance law. That would increase the tax on each pack of cigarettes to $2.51.
"It's a habit that leads to chronic illness," DiMasi said, brushing aside a question about the fairness of taxing smokers.
Patrick stopped short of endorsing the cigarette tax hike, only saying "everything's on the table."
While he eventually embraced Patrick's plan on business taxes, DiMasi did not foresee a similar reversal of opinion on casinos. He has opposed Patrick's bill to bring three resort-style casinos to Massachusetts, which the governor estimates would generate $400 million in annual tax revenue and thousands of new jobs.
"I'm skeptical, still," DiMasi said.
Senate President Therese Murray said she has previously discussed some of the items in DiMasi's proposal and looks forward to working with him on the budget.
"I am confident that the Senate, the House and the Gov. will have a product we can all be proud of and that will move the Commonwealth in the right direction," she said in a statement.
