Rosenberg: ‘We are no longer rolling in dough’
Senate President cites regressive, ineffective tax structure
What follows is the prepared text of a speech delivered Wednesday morning to the Greater Boston Chamber of Commerce.
AS WE GATHER HERE TODAY, we have much to celebrate as a business community, as a city, as a Commonwealth.
U.S. News and World Report ranks us as the best overall state. CNBC ranks us first in education, second in state support for technology and innovation, and third in quality workforce. The United Health Foundation’s annual report ranks us second in health care outcomes, the byproduct of our collective efforts to lead the nation in making sure everyone has health insurance. We share the top spot with California in energy efficiency, rank second overall in solar energy job creation, and seventh in solar capacity.
Our tech industry is rejuvenated, with a strong chance to dominate some of the fastest-growing new sectors, including cybersecurity, big data, and ehealth – among others.
Our quality of life is second to none, offering some of the world’s preeminent hospitals, cultural institutions, and sports teams. No city in the world has enjoyed the run of championships we’ve witnessed over the past decade.
These rankings do more than provide numbers; they paint a picture, of what kind of state we are. A state that is prosperous, innovative, and focused. But also compassionate, caring, and decent.
Today we enjoy full employment, a richly varied economy, and a raft of new companies who have chosen us as home. In no small part, we’ve done that by working together, Democrats and Republicans, liberals and conservatives. And, most importantly, for this audience, the public sector working with the private sector and vice versa.
And that frames the topic today: Are we prepared to maintain and strengthen our Commonwealth or will we squander our great work together?
Here are some important things to think about — the fiscal challenges we face in spite of our prosperity; the gnawing problem of income inequality; the speed of change in the modern world – speed which requires the state to become smarter, faster, and more nimble in response.
For fiscal challenges we need look no further than Washington.
Sen. Ed Markey’s analysis is that President Trump’s budget will cut nearly $1 billion in federal funding for research, clean energy, education, and social services programs, including almost a half a billion in cuts for Massachusetts in NIH funding, the essential fuel of our state’s life sciences and higher education economy.
Mixed in with that is our state government’s own structural imbalance. Two years ago, we elected a fiscally conservative, administratively proven governor. And since his election, he has looked under every rock and up every tree for savings, efficiencies. And here’s the upshot: He has to revisit the budget regularly to plug holes. And he even had to put on the table the notion of taxes: an assessment of $2,000 per employee for small companies and a tax on Airbnb.
This is not a criticism of the governor. We’re all in this together. Rather, it is window into his reality. Into our reality.
After delivering $3.4 billion in tax reductions in the ‘80s and ‘90s – cuts we could afford at the time; cuts that helped us shed the title Taxachusetts forever – the bill is finally coming due. It has been many years since we’ve been able to balance our budget without resorting to gimmicks and one-time revenue fixes – Band-Aids that result in structurally imbalanced budgets the following years.
In effect, we’ve been propping up a sagging house without ever addressing the real problem – its shaky foundation. And yet, even as we work feverishly to plug holes and board up broken windows, our taxpayers rightfully want a house built on stronger ground, with the finest materials, a house that can last well into the future.
The business community and others rightly call on us to keep improving our schools, fix our roads and bridges, build affordable houses, train and re-train our workers, and eliminate crushing college debt.
But if we are to meet the demands of our private sector partners in order to remain innovative and prosperous; fair and equitable; compassionate and decent; respectful of our environment, then we will need nothing less than a major infusion of public investment.
Oh but I got ahead of myself. Let me summarize the state’s fiscal condition as we prepare for the year that starts July 1. Tax revenue has been trending consistently below estimates the past few years. This is unsustainable and continues to undermine the state’s ability to balance its books. Next year will be no different. While new tax revenues will be around $1 billion, that billion doesn’t go as far as you might think.
First, over $300 million of it comes off the top for statutorily required transfers, leaving only $675 million available for spending in the budget. MassHealth continues to grow at about $1 billion per year. In addition, the growth in projected local aid funding for next year is likely to be over $100 million. Coupled with maintaining the same level of services, this leaves us with a structural budget gap of close to $1 billion. These non-discretionary items consume the new tax revenue, leaving almost nothing for other programs or new initiatives.
Now to a few other challenges. As always, we continue to work to reduce the growth in health care and energy costs.
We have people who are chronically unemployed or underemployed in a state that has tens of thousands of unfilled positions. We continue to face the persistent achievement gap that leaves so many children, and ultimately adults, behind in an economy that requires high-level skills for a person to survive.
We’ve made progress on addressing climate change and we’ve also become serious about criminal justice reform and I hope there will be a lot more to come this term on these fronts.
But we also continue to struggle with extreme income inequality as the gap between the rich and poor widens at a pace few other states are facing. And here are a few others: an aging workforce, a public transit system begun in the 1800s, highways bursting at the seams. Even though we ranked number one overall in U.S. News and World Reports rankings, we languished at number 47 in transportation.
As I noted before, we hired a governor three years ago who was and is a strong manager, a proven executive, a veteran budget cutter. And he has made real progress in addressing our budget woes by implementing meaningful reforms. But we remain in the same place – short on cash. As we’ve learned yet again, we cannot cut our way to success.
The reasons why our strong economy and our current tax system don’t produce sufficient revenue are both simple and complex. A flat income tax whose rate continues to decrease by statute as the economy improves. A sales tax that applies to goods, not services, in an economy largely driven by services, is another. A sales tax that applied to goods when the prices of goods haven’t been growing is another. And here’s a key one: At a time when trucks delivering online shopping clog our every street, we cannot collect sales tax on those goods.
In short, we have a regressive tax structure that puts the tax burden increasingly on the working and middle classes, two groups laboring under stagnant wages and increasingly unable to prop up our fiscal shortfalls.
Do we have the will, courage, and commitment to do what it takes to make the investments we need to flourish in the increasingly competitive 21st century. Are we willing to fund the future? Or will we rely on 20th century approaches, a 20th century tax code?
Will we put kids first and finally fund preschool for everyone, as the speaker suggested to you last month, so our next generation of workers are ready to take up the slack of our retirees? Will we finally pass the $15 minimum wage and guarantee paid family leave? Will we make sure our kids can afford college. Will we re-imagine our state colleges and universities in a way that meets tomorrow’s challenges, not the last generation’s?
Will we finally reform our criminal justice system – to cut costs, and to bring an end to a reckless system of mandatory sentences and unnecessary incarceration? And will we help those who have been incarcerated return to the community ready to be constructive partners.
Will we take on the real issues posed by climate control – rising sea levels, soaring heat, and increasingly violent storms – all that come with a price tag especially for Massachusetts which is a coastal state from Essex County to the Cape and the Islands?
More broadly, will we meet the challenges of our amazingly complex and competitive world? Or will we shrink back, cowered by difficult but fixable problems?
Here are a few concrete things we can do in the next few years: First, we have a transportation system that was literally first built in the 19th century. According to a report produced by the Dukakis Center, the average commute speed right now is a staggeringly low 10.3 mph on the Southeast Expressway – barely a crawl. It is not cheap but it is very doable to build a transportation system equipped for the 21st century.
Consider this, we have a scarcity of affordable housing and jobs without applicants. And yet, we have affordable housing in places where people don’t have jobs and jobs in places where people can’t find affordable housing – and can’t get to via public transportation.
As part of our 2017 Commonwealth Conversations tour, taxpayers across the state are telling us at Mass Moves workshops sponsored by the Barr Foundation that they want improved and expanded public transportation and improved roads and bridges — in that order.
Most people see economic growth as the number one reason to invest in our transportation system. They have seen what happens when the investments are made: Davis Square and Assembly Row in Somerville, Kendall Square in Cambridge, University Station in Westwood. All economic success stories.
They also see the benefit – really, the necessity – of cleaner transportation – more efficient or even gasless cars; more buses, trains, and public transit; just a general movement toward greener transit.
Lastly, people want to expand our system providing greater access to more places in the Commonwealth. Much of our policy is driven by maintenance of the current system – really, it’s geared toward just getting by. But the taxpayers are thinking bigger and they are willing to pay for improved access to public transportation and better roads and bridges.
When the results of all the Mass Moves workshops are in, I hope we can use the information they produce as the foundation for a larger conversation about transportation choices and policymaking going forward, especially in light of the possible passage of the Fair Share Tax and its set-aside for transportation funding.
Like transportation, our future is also riding on our ability to address persistent and troubling education issues. Right now, all told we have one of the world’s great education systems. And yet, problems endure.
Too many of our children, especially those in urban areas, graduate without the skills necessary to find jobs and make a life for themselves.
Too many of our children are never even given a real shot because they lack the opportunities in early childhood that their wealthier counterparts enjoy. You may have heard me say it before but I will say it again: If a child is reading at grade level when he or she reaches the 4th grade, then his or her chances for long-term educational success skyrocket. And what chance does a child have to reach that threshold if he or she has missed early childhood education?
So, the Fair Share tax could also help us to achieve a goal long talked about but never achieved: bringing early childhood education to every child in the Commonwealth. As those of you who follow us closely know, this is part of the Senate’s Kids First plan you’ll hear about next month. It is a crime that we allow generation after generation to be socially and economically isolated, unable to participate fully in our “#1 in the nation” status.
But beyond the moral aspect of this are the simple, pragmatic facts: Our workforce is aging. By 2030, more than three quarters of our population growth will be among the over-65 cohort. People will be retiring at a much higher rate than we can replace them, especially if we do not give today’s young people the tools they need to prosper. Our workforce is leaving too many behind. Today, it’s a crime that we fail to give the unemployed and underemployed the skills they need, when thousands of jobs go unfilled. It’s a moral failure that we fail to close the achievement gap. Because failing to do so shortchanges our economy, leaving behind countless kids who could be engineers and the scientists of tomorrow.
Twenty-four years ago, we passed the major education overhaul that has created an education system that is the envy of the nation. But now it’s time for all of us – elected officials, business leaders and teachers, union officials, and reform advocates, everyone who cares – to get around the same table and address this gaping hole in the mosaic of our success, this lingering inequality and its unfortunate outcome: an ill-prepared workforce for the mid-21st Century.
Now, hearing this from a senator from Amherst, may shock you. Despite what some people think, almost no one in government likes to raise taxes, least of all me. I have worked for years, as ways and means chairman, as majority leader and now as Senate president, to find ways for us to live within our means — to achieve our goals, to be sure, but to be fiscally prudent at the same time. In fact, I actually signed a conference committee report that delivered the single largest tax cut in history. It was the responsible thing to do at the time. But times have changed. We are no longer rolling in dough. And, if we want to continue to remain competitive, while we are basically at full employment, yet seeing no growth in our tax base, we must invest and this means we need a 21st century revenue system.
I hope all of you choose to support the Fair Share Tax initiative, which could make a measurable difference in funding education and transportation.
At a time when millionaires are slated to receive billions in tax breaks from Washington and at a time when the administration is shifting so much of the burden of government on to the states, it is not too much to ask those who have the most to give the most. Our future as a prosperous island in a sea of competition is at stake.
And I also hope you will reject a very bad idea if it gets to the ballot– to cut our sales tax through an initiative petition. Putting a tax cut on the ballot is like shooting fish in a barrel – it’s pretty easy to make dinner. But cutting our sales tax would cost us billions in lost revenue, just at the moment when we need new dollars and can find them through the Fair Share Tax, a carefully calibrated referendum that ensures that only those who are clearly able to contribute do so.
I’d like to close today with a thought I expressed to my colleagues on swearing-in day back in January. For those of you who were actually listening, I apologize in advance.
The Legislature is a venerable institution, steeped in history and deliberative in nature. Today, our chambers need to maintain their greatest qualities while becoming more nimble, moving more quickly without compromising quality.
New York Times columnist Tom Friedman has a new best seller called Thank You for Being Late, a title meant to underscore the conundrum of living in a world in which change is rapid and unrelenting. Consider this simple example we face here in Massachusetts. One of our achievements last year was to pass legislation regulating the new ride-sharing industry. Go back just five years ago to an era when there were no Ubers, no Lyfts, no ride sharing of any kind. Instead, there was a taxi industry that had existed for generations and had been regulated over a long period of time. Then, in a blink of an eye, the taxi industry – and its regulatory framework – was upended. Suddenly, new competition created by technologists on the other side of the continent caused massive disruption here – across the world, to the marketplace and to the law. In fact, for the better part of these past five or six years, these companies operated with no real rules at all.
Suddenly, we as a Legislature had to act more quickly and decisively – not incrementally. We had to regulate the new ride-sharing industry almost overnight. Did we move as quickly as we would have liked? Maybe not. But we did our research, listened to stakeholders, debated the issues and put a law on the books last year.
It would be nice now to rest on our laurels, to confidently move on from this to other matters. Except for this: In as few as five years from now, autonomous vehicles will again turn our world upside down. Not only will the Ubers and Lyfts of the world be offering rides to Americans in driverless cars, but the rest of us will also have the chance to replace our fossil-fueled, gas-taxed vehicles with all-electric vehicles and bye-bye hybrids!
Electric autonomous vehicles will present us with a new set of public finance, legal, insurance, and safety challenges. Once again, we will need to move quickly and deftly to handle this new disruption. So, not once but twice in a decade the rate of change in transportation rules will have shifted those made over generations to those made in a just a matter of months.
And this is but one small example. Climate change, energy, and education – the issues are coming at us at a fast and furious rate.All of us have a stake in these issues – everyone at every table here today. We’re all in this together. And in order to succeed and prosper, we will need to work together – business and government, voters and taxpayers and Senate presidents, you and me – to make this work.
Stanley Rosenberg is a state senator from Amherst and the president of the Massachusetts Senate.