Joshua Napoli

I don’t support changes to the income tax that raise the marginal rate (neither the earned income tax credit or the deduction increase). I posted this comment on bluestategroup, but I’ll copy it here, just in case:

We’re simultaneously seeking “fairness” and “positive social outcome”, but the two concepts don’t necessarily point to the same solution for state revenue collection. Progressive income tax produces a desirable social outcome: moving wealth to lower-income families. However, this is at the expense of fairness: tax burden is moved onto a smaller portion of the population and lower-income families still don’t end up with any more leverage to capture the social wealth that their labor is generating.

I would regard a fair taxation scheme to be one where everyone pays for the services that they use. The load that each person and each piece of property makes on the state resources is probably pretty consistent, so a low marginal tax rate will probably be more fair than a progressive tax system with a higher marginal rate. Fairness is important to avoid creating a economic distortion that discourages entrepreneurship and creates incentive to “game the system” (leaving the state or disguising income). On the other hand, becoming less progressive would have a negative overall social outcome, since a lot of people cannot currently afford to pay “their fair share” in this sense.

We can try to keep both the fairness of a non-progressive income tax and also the social benefit of increasing the wealth of low-income families by taking other measures to increase their wealth. If someone works diligently and still cannot afford to pay rent, tax, food and heating, then he or she is not being paid fairly for their work (or else we have unrealistic expectations for quality of life for Massachusetts residents). Strengthening unions, increasing the minimum wage, preferring economically depressed areas for new public assets (trains, universities, government offices) would all encourage increases in the wealth of lower-income people by giving them better leverage to capture the wealth that their labor is actually creating.

Like the authors of the Massachusetts constitution, I believe that everyone should pay their fair share of state taxes. A dramatic increase in the deduction and the income tax rate erodes that principle. Such a change is currently being discussed among state legislators. Instead of inventing tax schemes to redistribute wealth, we should focus on ways to make it easier for low-income families to increase their income. For example, we could double the minimum wage. Property tax (which disproportionately burdens middle-income people) could be lowered by allowing towns to add a percentage to the local income or sales tax rates.

I do think that an increase in the gas tax to compensate the current budget shortfall is a good idea. For example, a 35 cent per gallon tax increase (to a total of 56 cents per gallon) should close the $1B budget gap. The price of gasoline will stay low throughout the recession. The tax should keep pressure to move towards lower carbon output and lower oil imports. However we should plan on the price of gasoline to naturally rise as we exit the recession in a year or two.

A gasoline tax scheme that periodically adjusts to achieve target gas price (say, $3 per gallon) could both solve our current budget crisis and also provide price stability. Price stability will make it easier to budget for transportation costs and it will increase the certainty of economic reward for investment in more efficient transportation. This “counter-cyclic” tax should also help keep the state income more consistent. When economic growth declines, income and sales tax revenue will fall, but so will the price of gasoline. A “price target” gasoline tax would automatically offset some of this decline in state revenue.