Corporations need to pay their fair share
Expanding a failed tax break is wrong way to go
ALTHOUGH MASSACHUSETTS has entered the first phase of the Gov. Charlie Baker’s controversial reopening plan, the health and economic toll of COVID-19 is far from over. When it comes to state revenues, the picture is bleak — just when our communities need help the most, state revenues from sales, income, and corporate excise taxes are expected to plummet. We desperately need federal assistance, but the likelihood of substantial aid is uncertain. As dozens of Massachusetts economists recently argued, we must act at home to maximize new, progressive sources of revenue to protect the health and economic well-being of our people, our communities, and our Commonwealth. That means that corporations and wealthy individuals must pay their fair share.
One of the corporate tax loopholes to close is the single sales factor (SSF) tax break for mutual fund service corporations. SSF gives some multi-state corporations a break in their taxes by only looking at in-state sales —not payroll or property — to calculate taxes. Giving mutual fund companies this free pass has cost Massachusetts about $3 billion since 2011.
When first enacted in 1996, SSF for mutual funds was intended to keep jobs in the state — but companies that benefited were required to increase hiring for only five years. Fidelity Investment provides a useful example of SSF’s failure to ensure jobs remain in the state. Fidelity started cutting the number of its Massachusetts employees almost immediately after the SSF hiring requirements ended in 2002. In fact, today, Fidelity has thousands fewer employees in Massachusetts than it did before it got the single sales factor tax break. In 2019, Fidelity reported record revenues of $20.9 billion and an operating income of $6.9 billion.
Despite the high cost and failures of SSF, Republican lawmakers, multistate corporations, and corporate industry groups have pushed for an expansion of the tax break, with two bills currently in front of the Joint Committee on Revenue. A coalition of labor and community groups, including Massachusetts AFL-CIO, Massachusetts Voter Table, Community Labor United, and others, recently wrote to that committee, urging members not to advance these bills because they “would deprive Massachusetts of tens of millions in revenue that is desperately needed to support the health and economic well-being of working families endangered by COVID-19 pandemic.”
The prudent course of action is not to expand SSF, but instead to recoup some corporate tax revenue by ending SSF for mutual fund service companies. In recent years, this would have netted about $150 million annually toward state revenues. This is one mechanism to secure revenue from those who can afford it; despite the COVID-19-induced recession, there are signs that some mutual fund corporations are actually growing. In April, the Boston Globe reported that Fidelity is hiring 2,000 new employees nationwide, and —in contrast to many struggling businesses —is “investing in its business, to be ‘in a position of strength’ when the pandemic ends.”
Fidelity’s real estate arm recently purchased back the building at 245 Summer Street for $728.5 million, more than twice what it sold it for in 2004. Corporations that are growing and investing should not be a priority for tax cuts at this moment of crisis. Instead, they should contribute to the tax base in proportion to their sales, property, and payroll in Massachusetts.As we weather this unprecedented public health and economic crisis, our Commonwealth needs to dedicate essential resources to its frontline healthcare workers, other essential workers, and their families. Corporations must pay their fair share of taxes so that our leaders can ensure that we have the resources our communities need to sustain through this pandemic. This requires both rejecting efforts to extend SSF, and rolling it back for the mutual fund industry where it has proven to be a give-away with no jobs benefit.
Jamie Eldridge is the Massachusetts state senator for the Middlesex and Worcester District, Beth Huang is the director at the Massachusetts Voter Table, and Merrie Najimy is the president of the Massachusetts Teachers Association.