Earlier this month, Massachusetts Democratic governor Maura Healey touted the tax cuts she signed into law, stating in a press release: “$1 billion in tax cuts includes savings for seniors, businesses, renters, and the most generous Child and Family Tax Credit in the country.”
Not all tax cuts of $1 billion are equal. Because I’m an economist who realizes that incentives are important, I think the best tax cuts are those that reduce a marginal tax rate or increase a threshold beyond which a tax rate applies. Both kinds of tax cuts increase the incentive to make money or save money.
By that standard, there are two particularly good components in Massachusetts’ complicated tax-cut law. First, it cuts the tax rate on short-term capital gains from a whopping 12 percent to a less-whopping but still high 8.5 percent. Second, it reduces the death tax, increasing the threshold beyond which the estate tax applies from $1 million to $2 million. Both measures will give an increased incentive to save and invest and will also marginally raise the chance that relatively wealthy people will stay in Massachusetts.
This is from David R. Henderson, “Massachusetts Cuts–and Complicates–Taxes,” TaxBytes, Institute for Policy Innovation, October 25, 2023.
The conclusion:
I give the governor a C+ or maybe a B-. If you think that’s too generous, remember that I live in California. Here, a Democratic governor and a heavily Democratic legislature are still busy raising taxes.
Read the whole thing. You’ve already read half of it.
READER COMMENTS
Thomas L Hutcheson
Oct 28 2023 at 6:18pm
It would have been better to tax only inflation adjusted capital gains, but like ordinary income. Generous deductions for saving would push the system toward a more growth-promoting consumption tax and away from being an income tax. Tax what you want less or (consumption) not more of (income).
Bob
Oct 31 2023 at 1:06am
Horrible logic. So a tax cut for those with children is bad because it discriminates about those without, but a lowering of the estate tax floor doesn’t discriminate against those that didn’t save enough? Lowering the short term capital games doesn’t discriminate against savers that don’t do active trading?
One can have any preferences they want. Maybe our author believes we should tax white shirts, or that there should be no taxes on jeweled plugs. But own the preference, don’t couch the preferences one disagrees with by just applying arguments selectively. Low taxes on tobacco because you like to smoke? High ones on motorcycles because you think they are loud? Fly whatever kinks you have proudly.
robc
Oct 31 2023 at 1:33pm
Your argument is why I oppose the income tax entirely. It imposes too many moral quandries. Its not just preferences.
It is why I am a Single Land Taxer. Its the only tax that I can morally justify. Incomes tax, sales tax, property tax, excise tax, etc, etc, all have moral issues.
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