Editorial: Building A Better Climate
Effective Jan. 1, 2011, the corporate tax rate declined from 8.75 percent to 8.25 percent. That followed a decline last year from 9.5 percent.
And Massachusetts businesses are in for more good news in 2011, when the corporate tax rate is scheduled to drop to a nice even 8 percent.
The Department of Revenue estimates that the decrease in corporate taxes will add up to $411 million in savings spread over three fiscal years.
So it’s not all bad news for businesses, after all. And while we often use this editorial space to point out areas where government gets it wrong, we wanted to be fair and devote some space to saying, “Thank you, Massachusetts state government. The business community appreciates the roll back in the corporate tax rate.”
Give Us A Break
All right, that’s enough of the pleasantries.
While we are thankful for the lowered corporate tax rate and its expected decline next year, we’re also mindful that the tax picture in Massachusetts is anything but rosy.
According to a 2010 report from the Washington, D.C.-based Tax Foundation, Massachusetts ranks in the bottom half of all the states in terms of its business climate (we’re at No. 32). If the decline in the corporate tax rate goes through next year, we'll likely move up in the rankings, but not by much. The Tax Foundation takes several factors into account in their ranking, including property taxes, which are particularly high in the Bay State.
The reality is that a state’s tax climate matters. With all things being equal, why would a company chose to locate in Massachusetts over a low-tax state like Delaware or Texas? We’ve been able to rely on our state’s educated workforce and quality of life as a lure, but in tough times those qualitative factors will be less important.
We urge our state leaders and Legislature to take the issue of the business tax climate seriously this year. The Bay State would be well served by the formation of a nonpartisan commission to look at business taxes based on the model of the National Commission on Fiscal Responsibility and Reform, which was created by President Barack Obama to recommend changes in our federal tax code. That commission’s report provided a blueprint of how our tax code could be simplified and streamlined. A similar effort in Massachusetts would no doubt pay future dividends. Massachusetts should never aim to be a low-cost leader, but our state can continue to work to simplify and bring greater balance to the way we tax our commercial enterprises.
Disincentives
A statewide commission appointed to look at our tax climate would also be well served to take a look at system of handing out tax breaks and incentives. The issue came to the forefront recently when Marlborough-based Evergreen Solar announced it would close its Devens plant, laying off 800 workers, after receiving $58 million in state aid.
The outrage from the public was immediate. The Boston-based National Federation of Independent Businesses issued a statement calling for the state to seek to recover the subsidies and use it to pay back taxes to those businesses that “have weathered the recession without corporate welfare.”
We can understand the NFIB and general public’s dismay. Our state bent over backwards for the company, which has turned out to be a poor choice. While it’s unlikely anyone could have predicted the hard times that have hit Evergreen Solar when the tax incentives were doled out, it is clear that we need better protections in place to protect our state’s investments in risky startup ventures.
Overall, the Bay State needs a renewed focus on our business climate. High tax rates don’t have to be a fact of life. The commercial tax code may never fit onto one page, but making it as fair and simple as possible will encourage the kind of growth we need. And those tax dollars that are collected should be spent in prudent ways that foster economic development without taking undue risk. n
When we turned the page on 2010, we also turned the page to a new corporate tax rate in Massachusetts.
WBJ Web Partners
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