Friday, October 31, 2008

Unions, Workers Should Favor Repeal of MA Income Tax

(Vote Yes on Question 1)

Massachusetts voters have the opportunity to repeal the state income tax in the upcoming election. In the simplest of terms, it is a choice between sending tax dollars to Beacon Hill to spend, or to keep them in a taxpayer’s pocket. More broadly, lowering income taxes by definition increases take-home wages, spurs economic growth, and creates jobs. The loudest opponent of Question 1 is the unions. This vehement opposition could be the most puzzling aspect of the 2008 election. Unions and workers should actually be firmly in favor of Question 1, and eliminating the state income tax.

The basic goal of a union is to maximize the compensation of its members. A union provides a means of collective bargaining to enhance the ability of workers to increase their wages and benefits. The mistaken logic in the decision of union leaders to oppose Question 1 is that by limiting the pool of resources of the state government, the amount of money available for compensation will be lower, and jobs will be scarcer. This line of thinking is counter to simple economics.

First, and easiest to understand, is the direct increase in compensation which results from eliminating the state income tax. Massachusetts currently taxes income at 5.3%. By eliminating this tax, a worker will receive a raise of more than 5.3%. This is a permanent raise (well, as long as the income tax is not subsequently re-enacted). Most negotiators would be pleased to walk away from the table locking in that level of a permanent raise. Especially given the current economic difficulties, this kind of an increase to take home pay is significant, and cannot be dismissed.

Nor can the impact on the state economy be ignored. Massachusetts has lagged the rest of the country in growth and job creation. The unemployment rate is only dampened down by the fact that we have seen an out-migration of population (as in, those without jobs simply leave the state). A lower income tax, empirically and logically, leads to economic growth. Economic growth is what leads to job creation. Economic growth and job creation lead to higher compensation and a higher standard of living. With one ballot issue, unions and workers will have not only directly given themselves a raise of over 5%, but also enabled an economic environment that promotes growth and job creation and thus further increases in wages.

However, the argument is made that by denying funds to the state government, jobs for teachers, fire fighters, and policemen will become scarcer. Again, this line of reasoning ignores basic economic principles. Efficiency is created when spending is sourced from the lowest common denominator. In other words, hiring for local jobs is best done at the local level. The current system sends tax dollars to Beacon Hill, which then in turn disperses it to municipalities. Yet this occurs only through a filter of mandates, restrictions, guidelines, and of course special and powerful interests. Waste, by definition, clogs the system. Yes, local taxes (generally in the form of property) will go up. Yet given the inefficiencies of the current system, they will go up by less than the reduction in income taxes. Jobs that are based at the local level and that are also funded at the local level are more secure jobs, and are thus more effectively compensated jobs. With a lower income tax burden, local residents will be more open to increased local expenditures. Further, with the increased economic growth that results from eliminating the state income tax, other sources of revenue will increase at both the state and local level (more spending will lead to more sales tax revenue while higher demand for housing and commerce will increase property tax revenue).

Union members and workers need to carefully consider their position on eliminating the state income tax. A yes vote on question 1 is, by definition, in complete lock-step with the goal of a union: to maximize the compensation of workers. Eliminating the state income tax will cause a direct increase of after-tax income by more than 5%, at a time when it is especially needed. It will promote economic growth and thus job creation and higher wages. It will force more efficiency and shift hiring to the local level, eliminating the waste that comes from bureaucratic decision-making. Eliminating the state income tax will be an enormous benefit to union members and workers in the state of Massachusetts for a long, long time.

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