For about 50 percent of residents, the plan unveiled by Governor Deval Patrick on Wednesday night would mean a tax hike. But Patrick argues that there will be a new element of fairness in the system by pushing more of the tax burden onto higher-income earners and reducing it for those earning less, a long-held liberal goal.
Patrick has proposed a $1.9 billion tax increase to pay for an ambitious agenda. Elements of the plan include hiking the state income tax from 5.25 percent to 6.25 percent, while also lowering the sales tax from 6.25 percent to 4.5 percent.
The sales tax is considered harder on poor people, because they spend a bigger share of their income on consumer goods than the wealthy. For example, a millionaire and a temp worker who earns $25,000 a year will both pay the same $31.25 in state sales tax if he buys a $500 television. But that tax is a bigger chunk of the paycheck for the temp worker than the millionaire.
The income tax, by contrast, takes the same percentage from all earners, no matter how big their paychecks.
At the same time, Patrick would also double the amount of earnings that are exempt from income taxes – going from the current $4,400 for a single person to $8,800. That means the hypothetical temp worker who earns $25,000 a year would only be paying income taxes on $16,200 of his income. That added exemption would mean a lot less to those earning six or seven figure salaries.
“You increase the fairness of the tax system overall,” said Noah Berger, executive director of the Massachusetts Budget and Policy Center, a liberal think tank.
But Jim Stergios, executive director of the Pioneer institute, a conservative think tank, points out that very few people will actually see a decrease in taxes – only entire households earning less than $37,523, who would get a $100 to $200 tax cut, according to Patrick.
Everyone else would pay higher taxes. Those who earn more than $102,886 would bear the brunt, paying an additional $3,200 a year in combined income and sales taxes.
For those in between, the change would be less dramatic. Taxpayers who earn $37,523 to $60,414 a year would pay $100 more, while those who earn $60,414 to $102,886 would pay $400 more.
That will hurt the middle class, as household incomes went down last year and federal payroll taxes went up this year, Stergios said.
“That’s not the 1 percent,” being taxed more, Stergios said.
Citizens for Limited Taxation, the anti-tax group, said it was clear that Patrick was trying to “tax the rich” disproportionately. The group argued that the increase in the personal exemptions was effectively the same as a graduated income tax, under which tax rates are higher for higher income people. Massachusetts has a flat, rather than a graduated, income tax.