- Governor's Message
- Secretary's Message
- Budget Narrative
- Issues in Brief
- Education Investment
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- Pension Reform
- Debt Refinancing Strategy
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- Massachusetts Geographic Information Systems
- Federal Single Point of Contact
- Shared Services Model
- Access and Opportunity
- Line Item Consolidation
- Capital to Operating Transfer
- Information Technology Consolidation
- Capital Gains Revenue in the Budget
- Long-Term Retirement Liabilities
- Limiting Certain Tax Expenditures
- Health Care Reform
- Commonwealth Health and Prevention Fund
- Veterans and Soldiers' Homes
- Life Sciences Initiatives
- Reforming Community Supervision
- Police Training Initiative
- Update on County Sheriffs Transition
- Energy Management
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- Update on Transportation Reform
- Civic Engagement
- Budget Transparency
- GFOA Award
- User Guide
- Organization Chart
- Budget Development
- Financial Statements
- Appropriation Recommendations
- Operating Transfers
- Local Aid - Section 3
- Outside Sections
- Tax Expenditure Budget
- Capital Budget
- Federal Stimulus
Limiting Certain Tax Expenditures
[ index ]
FY2011 House 2 Budget Recommendation:
Issues in Brief
Deval L. Patrick, Governor
Timothy P. Murray, Lt. Governor
To carry out the Patrick-Murray Administration’s policy of shared sacrifice during a fiscally challenging time, and based on an unprecedented thorough review of the state tax code’s many preferences, we recommend limiting specific tax expenditures worth $151 million in fiscal year 2011.
What are tax expenditures?
Massachusetts law defines “tax expenditures” as “state tax revenue foregone as a direct result of [a] law which allows exemptions, exclusions, deductions from, or credits against, the taxes imposed on income, corporations, and sales.” Every year, as required by law, the Department of Revenue prepares a “Tax Expenditure Budget” that shows how much the Commonwealth spends for each of these tax expenditures. The current Tax Expenditure Budget is published as part of the Governor’s fiscal year 2011 budget proposal.
Our fiscal year 2011 review of tax expenditures
Unlike direct appropriations, tax expenditures are not usually re-examined every year, because they remain part of the Commonwealth’s permanent law until the Legislature affirmatively repeals or amends them. As part of its efforts to craft this balanced budget for fiscal year 2011, the Patrick-Murray Administration conducted a thorough review of the Tax Expenditure Budget. This review involved senior staff of the Governor’s office, the Executive Offices for Administration and Finance and of Housing and Economic Development, and the Department of Revenue. We recognized that many tax expenditures serve important purposes – including economic development and job creation – or simply reflect similar provisions in federal tax law. But we searched for tax expenditures that could not be justified, at least to their present extent, in the current fiscal crisis – and which could successfully be limited for fiscal year 2011.
Our fiscal year 2011 budget recommendations to limit tax expenditures
Based on our review, the Governor’s fiscal year 2011 budget recommends limiting certain tax expenditures, with resulting savings of $151 million.
Temporarily limit film tax credits – House 2 limits total film credits to $50 million for each of fiscal years 2011 and 2012. The temporary nature of this cap should not interfere with long-term plans to build film studios and will ultimately keep Massachusetts among the most competitive states for this significant industry.
Temporarily limit life sciences tax credits – Although promoting the critical life sciences industry remains one of our top economic development priorities, we will administratively reduce fiscal year 2011 tax credit awards by $5 million. This will still result in $20 million of life sciences tax credits being paid out in fiscal year 2011, a significant investment for an important Massachusetts industry.
Repeal aircraft sales tax exemption – This exemption can no longer be justified, especially since cars and boats are not exempt, and other states are likely to apply use taxes to aircraft if we do not. We do not seek to repeal the exemption for aircraft parts, because of the benefit that serves for our small airports. Repealing the exemption generates $5 million, and $800,000 is used to support school building construction.
Repeal sales tax exemption for candy and soda – Repealing this exemption serves important public health purposes and will support critical wellness and prevention programs, as described in a separate budget brief. Repealing the exemption generates $61.6 million, and nearly $10 million is used to support school building construction.
Remove exemption of cigars and smoking and smokeless tobacco from 2008 tobacco excise rate – The new cigarette excise rate passed by the Legislature in 2008 did not apply to these other tobacco products. We cannot justify this distinction in view of the important health and revenue benefits. The Governor’s budget directs these revenues to the Commonwealth Care Trust Fund to support the state’s health reform initiatives.
Tax credit transparency
Our fiscal year 2011 review of tax expenditures is the beginning of an ongoing process. To assist us in future efforts, and to provide the Legislature and the public with information that they also need, the Governor has again proposed a law promoting tax credit transparency. This proposal, originally made in the Governor’s fiscal year 2010 budget, requires public disclosure and analysis of the results, including the number of jobs created, of a particular kind of tax expenditure, known as refundable or transferable tax credit programs. As enacted in the Legislature’s fiscal year 2010 budget, however, this provision omitted important information -- especially the identity of the taxpayer -- necessary to analyze fully the effect of these tax credit programs. While in general we support strict confidentiality of taxpayer information, these refundable or transferable tax credit programs are similar to other state grant programs, and should likewise include the same requirement that the recipient’s identity be a public record.
 G.L. c. 29, sec. 1.
 G.L. c. 62C, sec. 82(b)(2).
 For example, the low-income housing and historic preservation tax credits are awarded so far in advance that limiting them would have no appreciable effect on fiscal year 2011 revenues. They also serve important public purposes.
 This initiative is proposed in the Governor’s supplemental budget, also filed today, because prompt enactment by March 2010 is necessary to obtain the estimated fiscal year 2011 savings.
 Therefore, the Governor returned for amendment the Legislature’s version of this proposal. See FY10 veto attachment F, and H. 4143 (2009).
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