There is a lot of talk these days about tax fairness, about progressive taxes and regressive taxes. What does this all mean, and how do these issues affect Massachusetts?
- A progressive tax system taxes higher income people more and lower income people less.
- A flat tax system taxes everyone the same.
- A regressive tax system taxes lower income people more and higher income people less.
While some may argue about whether a progressive tax system or a flat tax system is more fair, no one argues that a regressive system is fair. And yet, that's precisely the kind of tax system we have here in Massachusetts. The top 5% of income earners in the state pay between 6% and 8% of their income in state and local taxes. Indeed, the top 1% pay the least - exactly 6%. The remaining 95% of income earners in Massachusetts pay between 9% and 10% of their income in state and local taxes, with the bottom 20% of income earners paying the most - 9.7% (see here for a Mass Budget fact sheet on this).
This is both unfair, and nutty. We are trying to get the most money out of the people that earn the least, and the least money out of people that earn the most! It is part of the reason why Massachusetts is constantly short of money.
How do you fix this? As this terrific two-page fact sheet from the Institute on Taxation and Economic Policy explains, the state income tax is the most sensible way for states to make their tax systems more fair, more reliable, and also lay the groundwork for economic growth.
Here in Massachusetts, we are in a state of continual revenue deficits. Our transportation infrastructure, our public schools, our social safety net, our local communities, are all fraying after a decade or more of budget cuts. As we think about solutions, we would be wise to think about the income tax. It generates a reliable source of revenue, and it is the only broad-based tax available to us that makes our tax system more fair. . . and less nutty!