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November 17, 2016 Pro Bono Matters

Getting to Know the Commonwealth Formerly Known as “Taxachusetts”

By Francine J. Lipman, William S. Boyd Professor of Law, University of Nevada, Las Vegas, NV

Ode to Massachusetts

“You are the heart of New England
Old Ironsides and Bunker Hill
Where JFK once paved the way
To the day the world stood still
Your One By Land and Two By Sea
Helped set our country free
You can’t get better MASSACHUSETTS.”1

Section Members Love the Fall in Massachusetts

Massachusetts is a favorite fall meeting location for the Section. Boston Metro, where 80% of the population resides, includes the state capital and the booming business center. Boston boasts beautiful, crisp autumn weather with spectacularly colorful fall foliage.2 Massachusetts has a historic mass transit system, an engaged, intellectual and highly educated population, and was the center stage for the fight against taxation without representation.

Massachusetts’ Rich Tax History

The infamous Boston Tea Party, on the evening of December 16, 1773, was the culmination of a resistance movement against the Tea Act. British American colonists objected to the Tea Act passed by Parliament in 1773 because it was “taxation without representation.” Colonists believed that the Bill of Rights of 1689 established that only a Parliament representing all the British people, including the colonists, could levy permanent taxes. In every colony except Massachusetts, protesters had forced tea consignees to withdraw or return with their tea to England. In Boston, Governor Hutchinson was determined to stand with British authority and collect the tax. In response to this stalemate a group of colonial men, some disguised as Native Americans, boarded the ships and within three hours had dumped all 342 chests of tea into the bay.  

In his diary the next day, December 17, John Adams prophetically described the event:

Last Night 3 Cargoes of Bohea Tea were emptied into the Sea. This Morning a Man of War sails. This is the most magnificent Movement of all. There is a Dignity, a Majesty, a Sublimity, in this last Effort of the Patriots, that I greatly admire. The People should never rise, without doing something to be remembered—something notable And striking. This Destruction of the Tea is so bold, so daring, so firm, intrepid and inflexible, and it must have so important Consequences, and so lasting, that I cant but consider it as an Epocha in History.3

Massachusetts’ Modern Tax Evolution

More than 200 years later tax was still the subject of concern in the late 1970s as Massachusetts residents endured the third highest effective individual tax rate of any state, at 13.8%, just behind Alaska (>18%) and New York (>16%). Beantowners revolted and moved to decrease property taxes in 1980 and income taxes in the late 1990s. During the almost four decades since, Massachusetts has reduced its state and local tax burden by more than 26%, ranking as the third highest reduction of all states from 1977-2013. By comparison, the average state reduction during this period was about 9%. Today Massachusetts sits in the middle of all states ranking 25th highest (or lowest) with an effective individual tax rate of 10.1% for total state and local taxes paid. The U.S. average for the same year was slightly higher at 10.4%.

Like many other state and local tax burdens, Massachusetts taxes are not borne by its residents based upon ability to pay. Instead, Massachusetts has a state and local tax burden that is regressive. Regressive taxes impose the greatest percentage of tax burden on those with the least to contribute. The lowest 20% of Massachusetts income earners suffer a 9.5% effective tax rate while the highest 20% of earners broken down into the bottom 15%, next 4%, and the top 1% of earners only bear effective tax rates of 7.6%, 7.2%, and 5.1%.

The residents and the government of Massachusetts have been working to mitigate this burden. Like many states, Massachusetts has a sales and property tax structure that is inherently regressive, but Massachusetts does not subject most clothing, prescription medicine, home energy products, or food to sales tax. As a result of its low sales tax rate of 6.25%, these exclusions, and a vibrant economy, Massachusetts has one of the lowest sales tax burdens as a percentage of residents’ income in the United States.

Effective January 1, 2016, Massachusetts’ income tax was lowered to a flat tax rate of 5.1% on income other than capital gains. Capital gains are taxed at 12%, with a 50% long-term capital gain deduction. To reduce the burden on lower-income households, the government has implemented several mechanisms to effect a progressive tax structure despite the flat tax rate. Massachusetts has relatively large personal exemptions and a “no tax status” for households with income under certain thresholds. Massachusetts residents can also deduct certain amounts of federal payroll taxes and rents paid during the year.

The state also has a nonrefundable low-income credit and a refundable state earned income tax credit (EITC) that was increased in 2016 from 15% to 23% of the federal EITC. In 2013, more than 400,000 or 13% of Massachusetts residents claimed about $130 million in state EITC and $826 million in federal EITC. In 2010, before some of the changes described above, the lowest 20% of all Massachusetts earners had an effective income tax rate of 0.2%, while the top 5% of earners bore the highest effective tax rate burden of 4.2%. The second, third and fourth quintiles for the same tax year bore effective state income tax rates of 2.1%, 3.2%, and 3.7%.

Massachusetts Economy and Demographics

As a result of these and other government resources (including long-time access to affordable healthcare), Boston and Massachusetts residents can boast about the following relative state demographics.

Health and Welfare

  • 2nd highest health insurance coverage rate at 94%
  • Lowest teen pregnancy rate of all fifty states
  • 4th lowest rate of disconnected youth at 10%
  • 85% high school graduation rate, ranking 17th among all the states
  • 2nd highest rate of higher education attainment
  • 5.8% unemployment rate, ranking 22nd among all the states
  • Rate of pay for women at 81.9 cents for every dollar that men earn, ranking 14th among states
  • 2nd highest rate of food security at 90%
  • 4th lowest usage of high cost loans at only 4.2%

Poverty (Official Poverty Rate)

  • 11.6% of all state residents live in poverty, ranking as the 10th lowest state
  • 14.9% of all children live in poverty, ranking as the 9th lowest state
  • 12.4% of all working age women live in poverty, ranking as the 8th lowest state

Unfortunately, like many  other states, Massachusetts continues to have much higher rates of poverty for people of color than for their white counterparts, including African Americans (21.8%), Asian Americans (14%), Hispanics (30.6%) and Native Americans (23.6%).

Unfortunately, like many vibrant state economies, housing is expensive in Massachusetts and as a result, only 62 affordable housing units are available for every 100 tenants. This ranks Massachusetts 29th for affordable housing among all states. Income inequality is similarly high with the top 20% of all households receiving 18.5 times the income of the lowest 20% of all households. Massachusetts ranks 48th out of 50 states for income equality.

As noted above the residents and government of Massachusetts continue to work together on their economy and tax systems to mitigate inequality and poverty. Notably, Massachusetts has been gradually increasing the hourly minimum wage, moving from $8 in 2014 and $9 in 2015, to $10 in 2016: it is also scheduled to increase to $11.00 on January 1, 2017. Massachusetts has a special minimum wage rate for agricultural workers (currently only $8 per hour), unless the worker is 17 years old or an employer’s immediate family member. Minimum wage for service employees (tipped employees receiving more than $20 per month in tips) is $3.35 per hour, increasing to $3.75 per hour as of January 1, 2017.

More Interesting Massachusetts Firsts and Factoids

As the Section understands, Massachusetts is a fascinating and historically rich state with many notable firsts. Harvard was the first college in North America; Boston Commons was the first public park; and Massachusetts built the first subway and first Dunkin Donuts. Massachusetts also had the first U.S. Postal zip code; railroad with commuter fares; elementary school; sewing machine and Thanksgiving. Four U.S. Presidents—John Adams, John Quincy Adams, John F. Kennedy, and George H.W. Bush—were born in Massachusetts. And, of course, next time you join the Section in Boston please indulge in the state dessert with a piece of Boston crème pie and reflect upon Massachusetts’ rich history.

1 Excerpts from “Ode to Massachusetts,” written and composed by Joseph Falzone.

2 Take a sample fall foliage Boston tour here.

3 C. James Taylor, ed., Founding Families: Digital Editions of the Papers of the Winthrops and the Adamses, (Boston: Massachusetts Historical Society, 2016).