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More Spending, Income Tax Cut Unlikely As Tax Revenues Slow

By Scott S. Greenburger

Massachusetts’ recent surge in tax revenues will probably slow in the next two years, according to economic forecasters who testified on Beacon Hill Monday, dampening prospects for a big spending spree and the income tax cut sought by Governor Mitt Romney.

Tax revenue growth probably will slow to between 5 percent and 5.7 percent in each of the next two fiscal years, down from the 7.1 percent growth in the fiscal year that ended June 30, according to testimony Monday by state Revenue Commissioner Alan LeBovidge, Michael J. Widmer of the Massachusetts Taxpayers Foundation, and David Tuerck of the Beacon Hill Institute at Suffolk University.

Though their growth is slowing, the state’s collections for the current fiscal year, which ends June 30, will be large enough to trigger a modest expansion of state personal income tax exemptions, revenue officials disclosed Monday. The larger exemptions, required by a law enacted in 2002, will save individual taxpayers about $15 and couples about $29. Now couples will be able to deduct $7,700, up from $7,150, and individuals will be able to deduct $3,850, up from $3,575.

Monday’s assessment is closely watched on Beacon Hill, where lawmakers and Romney are already preparing the new state budget for fiscal year 2007, which begins July 1. It carries additional weight this year, because many political observers say that Romney is readying a run for president in 2008 and his stewardship of the state’s economy could be a factor in his campaign.

The economic forecasters attributed the projected slowdown to weak job growth, lower corporate profits, and a recently approved measure granting up to $275 million in refunds to 157,000 investors who paid capital gains taxes in 2002. Massachusetts lost jobs in August, September, and October.

“We are only one-sixth of the way back to where we were at the highpoint at the beginning of 2001,” Widmer said, referring to the 207,000 jobs the state lost during the recession. “The state’s fiscal affairs remain tight.” Income taxes make up the bulk of the state’s revenue.

A fourth witness, economist Alan Clayton-Matthews of the University of Massachusetts at Boston, declined to make a revenue prediction, but cautioned that “our economy is growing slowly, and it doesn’t show any signs of accelerating.”