The State Income Tax Rate Is Going Down Again

Money by Pictures of Money via Flickr/Creative Commons

When you get your first paycheck next year, look at the fine print more closely, because you’ll notice the state government taking a smaller cut of your earnings.

That’s right: On January 1, 2016, the state income tax rate will officially drop from 5.15 percent to 5.1 percent as part of a gradual decline that was set in motion in 2000 when voters approved a statewide ballot initiative to reduce the then-rate of 5.9 percent to 5.0 percent. The rollback was announced yesterday by Governor Charlie Baker and Lieutenant Governor Karyn Polito, after the state met mandated economic health indicators set in place to make sure the state could manage without the money.

In 2002, the income tax rollback, as it is known, was halted by legislators because of the post-9/11 recession, which put a major strain on the state budget. Lawmakers agreed on a plan that allowed the voter-approved law to proceed, but at a much slower rate and only if certain economic conditions were met. As part of the new law, the state income tax rate can decline by no more than half a percentage point per year until it finally reaches the five percent mark.

When the state income tax rate was increased to 5.9 percent, it was initially billed as a “temporary” measure to pay for a state budget deficit and rising health costs (sound familiar?), but it remained in place until 2000, when taxpayer activists succeeded at the ballot box.

With the state economy being relatively healthy, there is a strong likelihood the income tax will drop another half of a percent in 2017 and possibly in 2018.

The Senate looked to halt the income tax rollback in the most recent budget, but the more fiscally conservative House was not having it. State House News Service reported on Wednesday that new or higher taxes do not appear to be on the horizon in 2016. House Ways and Means Chairman Brian Dempsey said that taxes are “not on the table” for the next budget. Senate Ways and Means Chairman Karen Spilka concurred, noting that the only serious tax increase on the horizon is a possible 2018 ballot question that would amend the state’s constitution and create a special millionaires tax.

Massachusetts has a constitutionally mandated flat income tax, so any changes, particularly the creation of a progressive income tax, have to go through the amendment process rather than the typical ballot question route. Massachusetts voters have repeatedly rejected attempts to create a progressive income tax system in the state. The most recent attempt, in 1994, was shot down by nearly two-thirds of voters.