Before the T derailed, its funding got on the wrong track
Flawed funding formula, regressive tax policies responsible for fix we're in
A MESSAGE TO MBTA riders in distress: It doesn’t have to be this way. The T has been starved for adequate funding while overburdened with debt for decades. Increased fares, that began July 1, are not only poorly timed in the aftermath of the recent derailments, but also a regressive measure that will hit hardest those who can least afford to pay.
The MBTA’s financial quagmire is partly the product of a deeply flawed funding formula. Since 2001, the T has relied on a “penny on the state sales tax,” which tethers its financial future to retail sales. Expectations were that the sales tax would continue to rise by three to eight percent annually, but its actual growth has been only 1.5 percent, and the T does not receive any sales tax revenue on meals. Had the T’s share of sales taxes kept up with economic growth, the difference in funding last year would have been about $200 million – a gap that continues to accrue to the detriment of the T.
Overall, funding for the Commonwealth during the last two decades has relied increasingly on sales taxes and regressive user fees, while cutting income tax rates. As a result, we have an upside-down tax system. Effectively, these taxes and fees make lower-income Massachusetts residents pay a higher percentage (10 percent) of their income in state and local taxes than residents with the highest incomes (6.8 percent).
The MBTA’s four fare increases since 2012 make the situation worse. The July 1 fare hikes increased the average fare for T patrons by almost 6 percent, even though bus riders were spared this time around. For a commuter with $300,000 in annual investment returns and salary, the fare increase represents a minuscule portion of their income. For the average middle- and lower-income earner struggling with rising housing costs, the higher fares represent real burdens and painful trade-offs.
Our report, 14 Options for Raising Progressive Revenue, outlines several sensible opportunities for additional revenue. For example, past studies have shown that many of Massachusetts’s largest corporations pay nothing in corporate income taxes except the state’s corporate minimum tax of $456 – an amount that hasn’t changed for 30 years. Many other states have targeted their corporate minimum taxes by increasing the amount for larger companies. In New York, a company with in-state sales over $1 billion must pay at least $200,000 in taxes. Updating our minimum rates this way would progressively raise revenue that could be spent improving our infrastructure.More fare increases and regressive taxes and fees will make our revenue system even more upside down. As lawmakers look for long-term funding fixes, they shouldn’t forget that getting us on the right track also means turning our revenue system right side up.
Phineas Baxandall is a senior analyst at the Massachusetts Budget and Policy Center.