Mass Market: Business leaders to battle repeal of state income tax

Jon Chesto

Business leaders were taken by surprise in 2002 when a ballot question that would repeal the state income tax won 45 percent of the votes.

Now that Question 1 has resurfaced for the 2008 elections, many business groups aren't underestimating its potential impact again. With a few weeks left before voters go to the polls, business leaders are plotting a more concerted opposition to ensure their concerns are heard.

Not surprisingly, labor unions have a head start: They've funded a resistance campaign, with more than $2 million in donations so far this year, and they just launched a TV ad blitz to fight Question 1.

Now, it's the corporate community's turn to sound off. Four Boston business groups hired research firm Global Insight to study the damage that the loss of $12.5 billion in annual income taxes would cause to the state's economy. The four groups - the Massachusetts Taxpayers Foundation, the Greater Boston Chamber of Commerce, Associated Industries of Massachusetts and the Massachusetts Business Roundtable - released the report Monday.

The income tax represents about 60 percent of the state's tax collections and funds about 40 percent of the budget, according to the Massachusetts Taxpayers Foundation. Question 1's critics say the loss of that key revenue source would lead to unprecedented layoffs and widespread service cuts - along with increases in other taxes.

“If we adopt Question 1, that would be the most devastating thing we could do for the Mass. economy,” says Jim Klocke, of the Greater Boston chamber. “This is not minor surgery. This is amputation of all your limbs.”

The ballot question would cut the state's income tax rate of 5.3 percent in half on Jan. 1, and then to zero at the start of 2010. Mike Widmer, president of the Massachusetts Taxpayers Foundation, notes that the loss would hit the state government as it navigates its biggest fiscal crisis in years to close a budget gap of more than $1.5 billion.

The Boston business groups aren't the only ones who are concerned. The Plymouth Area Chamber of Commerce sent an e-mail to members on Wednesday, urging them to vote against Question 1. The Plymouth chamber says the initiative would paralyze local governments and make it challenging to fix the state's aging roads and bridges.

The chamber also plans to distribute fliers opposing Question 1 at its upcoming functions. Denis Hanks, the chamber's executive director, says the Plymouth area in particular would be hard-hit, given the local tourism industry's reliance on public funds.

Carla Howell, chairwoman of the pro-Question 1 Committee For Small Government, says many small businesses across the state side with her on killing the state income tax.

“Any honest economist will tell you that low taxes encourages jobs,” she says.

She accuses the anti-Question 1 groups of opposing her ballot question because they profit from heavy state spending and are too close with state politicians.

That's not entirely true. Business leaders, including the ones who are fighting Question 1, have been frustrated with many of the Legislature's actions lately, particularly with regard to the implementation of the state's health care reforms.

Not every business group is taking a stand against Question 1, partly for that reason. The South Shore Chamber of Commerce deliberately decided to stay neutral on the issue before the election, chamber CEO Peter Forman says. He says many of the South Shore chamber's members are unhappy with the state government's business-related decisions in the past year, and do not want to be perceived as defending the status quo.

Forman says he expects that if Question 1 passes, the Legislature would simply pass a law to repeal it and protect the income tax. He pointed to the lawmakers' decision to only partially complete the rollback of the income tax to 5 percent that voters approved in 2000.

But Widmer, the Massachusetts Taxpayers Foundation president, isn't counting on a repeal. He suspects that legislators will be pressured to honor the voters' wishes given the economy's current turmoil.

Widmer was one of the few outspoken critics who took Question 1 seriously six years ago. But this time around, he has plenty of company among business leaders who aren't taking the future of the state's income tax for granted.

Jon Chesto is the business editor of The Patriot Ledger. He may be reached at