While credit is due to Governor Patrick for his submission of a revenue-progressive tax structure, the devil is in the details. A close look at the proposal – in particular the forty-five tax exemptions that are slated to be abolished – demonstrate that the proposal is not progressive at all.
Indeed, the real-world effects of Patrick’s plan will be disastrous to working and middle-class families out of proportion to its benefits. On paper, this would look good; and indeed would be great if targeted middle and lower-income deductions remained in place.
The problem is that many family-friendly deductions will be abolished, with negative repercussions to those families. Indeed the proposal, taken in its entirety, harms working and middle-class families more than its nominal progressivity inconveniences the rich. In a high-cost State with many two-income households, the devil is in the details.
The particular detail is that post-deduction income is the best way to gauge tangible benefits to families.
Under Patrick’s Plan, working residents will suffer: While the level of unemployment is increasing , workers take a hit because the exemptions for workers compensation, employer-provided childcare, employer-provided education, employer-provided meals, social security and pension contributions, qualified retirement-planning services, commuting are abolished.
Decreasing public employee pensions further hurts working residents, and those pensions have been under assault for years.
On matters of health care the Governor’s plan can be considered reactionary because it abolishes exemptions that operate in the best interests of patients. For example, accident, accidental death, and life insurance premiums would no longer be deductible; nor would health and medical savings accounts.
Discharge of indebtedness by health care professionals would adversely affect primary care because it would further distort the market in favor of high-cost medical specialties, where doctors would find it easier to pay their college and medical school tuition costs.
Families are adversely affected by the abolition of deductions for business-related childcare expenses, adoption fees, dependents, dependent students, dependent care, “certain” foster care, and savings account interest.
The cost of education will be adversely affected because the costs of scholarships and fellowships, employer-paid education, and tuition will no longer be deductible by employers, students and parents.
Patrick’s proposal institutionalizes environmental injustice because it abolishes deductions for parking, MBTA passes, van pool benefits, and clean fuel vehicles. It also abolishes the lead paint removal credit and the renewable energy source credit.
Hence, the proposal indirectly creates incentives for single-passenger automobile traffic and toxic buildings.
The elderly and fixed-income householders will be hurt by the abolition of deductions for capital gains, home sales, the homeowners assistance plan, and the demise of the septic systems repair credits. There is a tendency for policy elites to forget that property equity is often times the result of appreciation in the absence of liquid assets. This is especially true in newly-fashionable urban neighborhoods. Hence the fixed-income poor find themselves in gentrified neighborhoods where the assessed value of their property creates a tax burden above their ability to pay which often forces them to sell their property. Rather than surplus income, the capital gain from selling their property is much of their total worth.
Furthermore, homeowners assistance and septic repair credits benefit those who would otherwise find it difficult to maintain their property. For this reason these tax credits benefit entire neighborhoods, not just those residents of limited means.
The abolition of these deductions disproportionately and adversely affects elderly and working-class homeowners, particularly those of color.
Institutional progressives won’t be spared. Patrick’s plan abolishes exemptions for charitable-purpose income and charitable contributions. This, of course, undercuts much of the nonprofit community at the source by removing incentives to donate to progressive causes.
Complicating matters, much of Patrick’s plan is premised upon assumed revenues of $415 million from casino gambling over the next decade.
The moral and fiscal costs of casino gambling aside (the human costs of gambling addiction and crime equate to huge public safety and human service expenses), the broader economics of an overextended industry, where casinos are losing money even with overt corporate welfare and infrastructure subsidies, make it unlikely that Patrick’s net revenue goals will be met from casinos.
In fairness, I don’t think the intent of the proposal is to adversely penalize lower and lower-middle income families. It does, however, point out the danger of over-dependence on abstract economic models at the expense of real-world consequences. It also shows the dissonance between the real existence of working families and policy elites.
Finally, Patrick’s tax policy is an example that, given a little analysis, unintended consequences need not be unforeseen calamities.
—Paul Simmons
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