BOSTON — With Congress considering whether U.S. taxpayers will get hit with major federal tax increases in 2013, Patrick administration officials have confirmed that the next scheduled dose of broad-based state tax relief will not be delivered on Jan. 1, 2013.
In a letter to Administration and Finance Secretary Jay Gonzalez obtained by the News Service, Department of Revenue Commissioner Amy Pitter said recent tax collection levels didn’t satisfy legal requirements to trigger a reduction in the income tax on Jan. 1 to 5.2 percent from 5.25 percent.
State officials have estimated the cut would have been worth $110 million to $124 million annualized — tax relief that a disappointed House Minority Leader Brad Jones described as “thwarted” by negative tax revenue growth over the past three months.
Massachusetts voters in 2000 approved a ballot question calling for the income tax to be reduced from 5.95 percent to 5 percent by 2003. But in 2002, in order to raise $215 million as part of a larger tax hike package, the Democrat-controlled state Legislature froze the income tax rate at 5.3 percent and conditioned further reductions on triggers that were met last year for the first time precipitating a reduction in the income tax rate this year to 5.25 percent.
Under the formula, the income tax rate would fall to 5.2 percent on Jan. 1, 2013 if growth in fiscal 2012 inflation-adjusted baseline revenues over fiscal 2011 exceeds 2.5 percent and if, for each consecutive three-month period starting in August and ending in November 2012, there is positive inflation-adjusted baseline revenue growth as compared to the same consecutive three-month period in 2011.
According to state finance documents, Pitter in September certified that fiscal 2012 inflation-adjusted baseline revenues grew by 2.77 percent from fiscal 2011, exceeding the initial trigger for the tax cut.
But in a letter dated last week, Pitter said that after revenue growth exceeded triggers for two straight months, baseline revenue fell by 1.29 percent for the three-month period ending on Oct. 31, 2012.
“Therefore, I hereby certify that the thresholds for lowering the Part B income tax rate as set forth in the Act have not been met, and that the Part B income tax rate will be kept unchanged at 5.25% for the tax years 2013 and thereafter,” Pitter wrote in her letter to Gonzalez. She added, “This statement should be considered as my final statement with respect to the Part B income tax rate and that no further certifications are necessary on this matter.”
The news comes as the Patrick administration eyes midyear spending cuts with tax collections running more than $250 million behind budget benchmarks. State officials are also bracing for federal aid reductions that are contingent on ongoing talks in Washington D.C. over deep spending cuts and tax increases scheduled to take effect in 2013.
In a statement, Rep. Jones said the stalled income tax cut reflected the current state of the economy.
“The fact that positive revenue growth should have been a relatively easy hurdle to clear further proves how the Commonwealth’s economy remains extremely fragile,” Jones said. “Unfortunately, hard-working taxpayers and struggling families have just been dealt another blow during these trying economic times.
“As such,” he said, “it is imperative that Gov. Patrick and Democratic leaders on Beacon Hill see this as a clear signal that any statewide tax increase would be disastrous.”