Last Wednesday, Jan. 15, Governor Deval Patrick delivered his seventh state address with an ambitious proposal to raise income tax rates by 1 percent and reduce the sales tax rate by 2 percent in order to compete with surrounding states. This would raise the income tax from the current 5.25 percent to 6.25 percent. The extra prospected earnings were advertised to go towards public education and future transportation projects. The problem with his ambitious proposal – which State Congress will be considering in the upcoming 2013 fiscal year – is not necessarily the suggested raise, but the fact that Massachusetts still uses a flat rate income tax system.
If any of you are confused about what I am talking about, let me break it down for you. Every time you receive a paycheck from your employer, a percentage of your total earnings is taken out depending on your reported annual earnings filed on your initial W-2 form filled out at the start of employment. Your employer essentially decides which federal and state tax brackets you belong in and applies your perspective percentage tax to every paycheck. On the actual check, these taxes are commonly referred to as state and federal withholdings. Federal income tax systems, along with the overwhelming majority of American states, follow a progressive tax system broken down by average yearly earnings.
Massachusetts is one of only seven states that does not have a progressive tax system. The “surrounding” states, with the exception of New Hampshire (which does not have any state income tax,) Deval was supposedly referring to all have a reasonable and successful progressive tax system. Massachusetts is also currently the state with the highest percentage rate among flat income tax rate states. The next closest percentage is from the state of Illinois, which is a solid 5 percent but is set to decrease to 3.25 percent in the next two years.
If the Governor’s excuse for the raise is to compete with these other states, his argument would be more convincing and relevant if he were to have proposed a progressive tax rate. Expecting workers of the average minimum yearly income bracket to pay the same income tax rate as the maximum yearly income bracket is unfair to the taxpayers who are already paying federal taxes. Flat rate income taxes are not only primitive, but also out of date for a state with such a large and impacted population.
In addition to the recently approved income tax changes by the U.S. Congress on the early morning of January 1, Massachusetts residents and workers could now expect another 6.25 percent taken from their paychecks for the state if the state representatives decide to act on the Governor’s suggestion. Flat rate income tax systems are obsolete and should only be considered for states with low populations and average yearly income rates of roughly the same amount. If this goes into action, that would mean a person in the lowest federal income tax bracket would give up 10 percent in federal income taxes and an extra 6.25 percent in state income tax, which would mean this worker would be paying an annual rate of $1,450.31 in solely income taxes. I don’t know about you, but I would prefer to keep as much from my paycheck as possible, especially when I, a minimum wage college student, will be forced to pay the same tax rate as someone making $400,000 or more.