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Responsibility:
 Tom Sgouros
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Thu, 18 Oct 2007
How much is the "flat" tax costing us?
As you may know, in 2006, the legislature adopted a tax cap for very
wealthy taxpayers. The idea is that we shouldn't tax those people any
more than they'd be taxed in Massachusetts. This is supposed to help
our economy somehow, though there is little reason to think so, unless
you think that rich investors power the economy, regardless of the
fate of the workers, customers, inventors, roads, schools, police and
fire departments on which they depend.
But putting those little details aside, there is some confusion
about how much this tax cut will actually cost us. The tax division
put some numbers out in 2006, based on the 2005 tax returns, but they
didn't make any predictions for the future. What's been clear over
the past several years is that the incomes of the wealthy are growing
at a different rate than the incomes of the less-wealthy. This makes
tax projections tricky.
What makes them trickier is that the Bush administration's IRS has
decided it's no longer important to provide detailed tax data for the
states. (They still provide state data, but with far less detail than
since the statistics of income bureau was established.) So there are
some significant grains of salt to take with tax projections. That
said, knowing the cost of this cut is important to what passes for
policy debate around here, so I spent some time this past week
reconstructing my model of income distribution and tax collections for
our state, to take newer data into account.
Here is what I get for the flat tax costs. The second column is
the limit, which is applied to the taxpayer's taxable income:
| Year | Limit | Cost |
| 2006 | 8.0% | $5.7 million |
| 2007 | 7.5% | $11 million |
| 2008 | 7.0% | $18 million |
| 2009 | 6.5% | $36 million |
| 2010 | 6.0% | $63 million |
| 2011 | 5.5% | $112 million |
Caveats: I'd be willing to bet these are within 10% of the right answer,
but no better than that. These are tax year predictions, not fiscal
years. Here's the hit on fiscal years, more useful for discussions of
the state budget:
| FY | Cost |
| FY07 | $8.4 million |
| FY08 | $15 million |
| FY09 | $27 million |
| FY10 | $49 million |
| FY11 | $88 million |
| FY12 | $112 million |
These are the best estimates I can make with the available data.
When more data becomes available, I will revise them.
08:12 - 18 Oct 2007 [/y7/oc]
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