Commonwealth chops away at 'Taxachusetts' image

Soaring taxes may no longer be a way of life in history-drenched Massachusetts, scene of America's first tax revolt more than two centuries ago. Wielders of last November's local property tax scythe, known as Proposition 2 1/2, are now ready to take another swipe, this time at the more than $6 billion in state spending.

And if successful, the commonwealth's none-too-flattering "Taxachusetts" nickname could be a thing of the past.

Massachusetts ranked sixth among the 50 states in per capita taxes in 1979 and fourth in taxes per $1,000 of personal income, according to the US Census Bureau. Only Alaska, New York, and Wyoming carried a heavier levy burden. Meanwhile, neighboring New Hampshire ranked 45th, Connecticut 30th, and Rhode Island 23rd.

Regardless of whether the overall state and local tax burden is eased further , Massachusetts already appears to have made significant headway in that direction, particularly in the last two years.

In 1979, for example, a 4 percent cap in increased municipal spending was imposed. Later that year personal income tax exemptions were increased and a three-step phase- down of taxes on capital gains was approved.

And then came the people's Proposition 2 1/2 mandate for not only property tax reductions, but an automobile excise-tax slash, and income-tax deductions for tenants.

These represent a total taxpayer savings of about 9 percent, or $636 million in state and local levies just for the year which begins July 1.

Although the full impact of Proposition 2 1/2 has yet to be felt -- and it is uncertain whether still-stunned lawmakers will cut the state budget to free up more local aid -- the commonwealth's drop in property taxes should help entice workers and investments.

Before Proposition 2 1/2, the Bay State had been getting 46.2 percent of its total state and local revenue from the property tax. This ranked second only to New Hampshire. And on a per capita basis, only Alaska outranks Massachusetts in real estate levies.

Despite the modest exemption increases and new deduction for renters, the Bay State's income tax remains among the nation's highest. Last year, it ranked fifth among the 44 states with such levies.

The 5.374 personal income tax on earned income and the 10.75 percent levy on unearned income (dividends) produced $1.86 billion, or 25 percent of the $6.83 billion in state and municipal tax collections last year. Property taxes yielded some $3 billion.

Considerably less of a revenue producer, and certainly most underutilized, is the current 5 percent limited sales tax. It brought in $506.7 million in fiscal 1980, and together with other consumer-related levies such as liquor, cigarette, rooms, and motor fuels taxes, accounted for 17 percent of the total combined state and municipal revenues.

While Bay State officials, including Gov. Edward J. King, appear committed to holding the overall tax-bite level, several proposals to hike the sales taxes, or broaden its coverage, are being weighed. Massachusetts now ranks 45th out of the 47 sales-tax states in per $1,000 of personal income.

From a business tax standpoint, the commonwealth is perhaps more competitive than might appear on the surface. The 9.5 percent corporate income tax, which last year brought in $438.88 million, combined with levies on insurance, banking , and public utilities, now accounts for less than 10 percent of the total state-local taxation.

A University of Massachusetts study, completed last month, showed that business taxes in the Bay State took a smaller bite than the average in the 17 competing states.

Besides the personal income, sales, and corporate income levies, Massachusetts has taxes on motor fuels at 10 percent of the wholesale price now the equivalent of about 11 cents a gallon, 5.7 percent on rooms occupancy, 21 cents a cigarette pack, 5 to 16 percent on inheritances and estates, 2.28 percent on insurance premiums, 14 percent on insurance company investment income , and so on.

Tax-cutting has been the trend since the state was hit in 1975 with two shopping revenue-boost packages, producing an estimated $484 million. Last year , however, lawmakers faced an approaching highway fund deficit and shifted the gasoline tax from 8.5 cents per gallon to 10 percent of wholesale price.

Bringing the per capita state and local tax level -- which was $1,174 in 1979 -- down to the national average in competing states is a prime objective of the two-year-old King administration.

That this goal may be closer than might appear on the surface is underscored by a recent study by the hardly neutral Joint Legislative Committee on Taxation which showed that the percentage of state and local taxes borne by business dropped from 17.5 percent in fiscal 1979 to 16.2 percent last year and is heading for 14 percent in fiscal 1982. In contrast, the national average percentage of state and local business tax burden went from 15.7 percent in 1979 to 14.8 percent this year, and is projected to climb to 15.1 percent.

The Bay State brighter tax picture could be made even more glowing. Lawmakers, now wise to heading off citizen ballot initiatives early, are weighing a move to lassoo the tax giant by limiting state and local tax growth to the increase in personal income. Also, levies would be shaved half-a-percent a year until the tax level reaches that of the 17 other industrial states.