Professor Emeritus, Northeastern University School of Law; former general counsel, Massachusetts Executive Office for Administration and Finance; board member, Massachusetts Budget and Policy Center
If we expect our state to provide the services needed for a thriving citizenry and a robust economy, and to provide needed additional assistance to struggling working families, we must require the large, highly profitable global corporations that dominate our economy to pay their fair share in state taxes. Yet, over recent decades, while corporate profits have grown dramatically, our corporate tax has declined steeply as a source of state income – dropping from 16 percent of state taxes in the 1980s to 10.6 percent in the past decade.
How did this happen? Over this period, large multinational corporations deployed increasingly inventive accounting strategies to shift ever-larger shares of their profits beyond reach of state taxation. Finally, in 2008, Massachusetts adopted a key loophole-closing reform, but, in a “compromise” with corporate lobbyists, lawmakers simultaneously reduced the corporate tax rate from its longstanding 9.5 percent to its current 8 percent, largely surrendering any revenue gains.
Like the rest of us, corporations depend on government services. It’s high time we restored the 9.5 percent rate to start addressing corporate tax avoidance and to provide $375 million to $500 million in annual revenues. This would go a long way toward making Governor Maura Healey’s proposed tax cuts for working families affordable, without threatening services. Data shows Massachusetts’s business taxes are substantially below the US average.
Raising the corporate tax will largely not affect smaller businesses, most of which are taxed through the owners’ personal income tax. And it won’t “drive businesses out of Massachusetts.” The primary factor determining how much of corporations’ profits are taxed is their sales to Massachusetts customers; for manufacturers and many other mobile corporations, their Massachusetts tax bill is totally unaffected by where their plant and employees are located.
Restoring the tax rate isn’t the only way to address declining corporate taxes. Further loophole closings are an alternative, including adopting a state version of the new federal alternative minimum tax or ending Massachusetts’ loophole which lets large corporations avoid taxes on major portions of income shifted overseas. Let’s also make taxation of publicly traded corporations transparent by releasing their annual tax reports filed with the secretary of state.
It’s time to demand that powerful, profitable corporations again pay their fair share to Massachusetts.
Vice president of Government Affairs, Associated Industries of Massachusetts
In today’s extremely mobile economic climate, states with the competitive edge get the businesses. If policy makers want to grow the economy and attract employers to Massachusetts, they should not raise the corporate income tax to 9.5 percent. The Commonwealth is in competition with 49 other states to grow and retain businesses and we need to start acting like it. Past economic performance will not guarantee future results.
Regardless of how you may feel about tax policy, the hard reality is that other states want our businesses to relocate, and they are providing ample incentives to draw them away. Governor Maura Healey herself said at the January Associated Industries of Massachusetts Executive Forum, “We need tax reform. We need tax relief. Making Massachusetts more competitive and attractive means doing just that.” Relief means reducing taxes, not increasing.
Raising the corporate tax rate to 9.5 percent would move Massachusetts backward on tax policy. The Commonwealth would become one of only five states with a corporate rate more than 9 percent. Massachusetts already is behind competitors on capital gains, and the estate tax. And the new “millionaires tax” — which levies an added 4 percent surtax on income above $1 million — will apply to business owners who pass corporate income to their personal income taxes. On top of that, we have one of the highest costs of living in the country.
Massachusetts can no longer rely on its highly skilled workforce as a differentiator. According to a 2022 MassINC study, the state’s workforce will lose 192,000 working-age residents with a college degree by 2030. Working-age families are leaving the state due to the high cost of living. Likewise, the cost of doing business has been increasing. Employers will likely follow the exodus of talent and locate in states with more favorable cost incentives.
Furthermore, Massachusetts does not need additional revenue. Forecasts show revenues remaining steady, and the Legislature will have additional money to spend on education and transportation. With all this revenue sitting around, why raise taxes?
Policy makers in the Commonwealth have wisely spent the last several years trying to shed the “Taxachusetts” label. Implementing an anticompetitive tax increase right now is a step backward for Massachusetts at a time we cannot afford it.
As told to Globe correspondent John Laidler.