n
the mid-1990s, faced with threats of losing industry giants Raytheon Co.
and Fidelity Investments to other states, the Legislature voted a pair of
lucrative corporate tax breaks designed to keep jobs at the two companies
in Massachusetts.
But now, with Raytheon and Fidelity shedding jobs and the state facing
a yawning budget gap, some lawmakers are rethinking those corporate
breaks.
The state Department of Revenue says the cuts are draining about $150
million from state coffers this year -- money some House and Senate
members want used instead to save a range of programs now scheduled for
reduction of even elimination.
''We need to rethink everything government does,'' said Senate Taxation
Committee chairwoman Cynthia Stone Creem, a Newton Democrat. ''And we need
to look at taxes as a whole, not in a vacuum.''
But business lobbyists are prepared to fight. They say the tax breaks
are essential to an economic recovery, and to maintaining a healthy
business climate. And they have a ready ally in Governor Mitt Romney, who
is opposed to new taxes. If Romney vetoes a tax change, an override would
require two-thirds of lawmakers' votes.
''The retention of these incentives are key to restoring our economic
health,'' said Brian R. Gilmore, executive vice president of Associated
Industries of Massachusetts. Numerous bills have been filed by lawmakers
seeking to strip the corporate tax cuts, or to make them conditional on
preservation of a minimum level of jobs in Massachusetts.
The state Senate is likely to give considerable attention to a
corporate tax challenge. Senate President Robert E. Travaglini has said
he's willing to consider any plan to close the budget gap, including new
taxes. And at a public hearing last week, Senate Ways and Means chairwoman
Therese Murray singled out the Raytheon and Fidelity tax breaks for
possible reexamination.
But House Speaker Thomas M. Finneran has said that he wants to balance
the budget without new taxes, given Romney's veto threat. House Taxation
Committee chairman Paul C. Casey acknowledged mounting public pressure to
take a fresh look at corporate taxes, but said tax cuts for the
manufacturing and mutual fund industry remain sound policy.
In 1995 and 1996, Raytheon and Fidelity successfully lobbied the
Legislature to change the formula for calculating state corporate taxes
for them and similar companies. The state typically uses a formula that
considers the value of a corporation's payroll, property holdings and
sales. But Raytheon and Fidelity lobbied for a ''single sales factor''
formula, whereby their corporate tax would be determined solely by
in-state sales, not payroll or property.
The tax breaks benefited not only Raytheon and Fidelity, but 250 other
Massachusetts-based manufacturers and a handful of mutual fund firms
located here.
In the late 1990s, when the economy was humming, the corporate tax
break meant as much as $200 million in savings for the companies. Since
the economic downturn, the benefit is pegged at about $150 million.
The intent of the tax break was to fend off other states' attempts to
lure away some of the state's largest employers. It set employment
thresholds to hold the companies accountable: Raytheon and other defense
contractors had to preserve 90 percent of their in-state payroll for five
years to qualify for the tax break, and Fidelity and other mutual fund
companies had to increase the number of Massachusetts-based jobs by 5
percent annually for five years.
Raytheon met its payroll goal even while lowering the number of its
employees from 19,500 in 1995, to 15,000 today, in part by paying its
remaining employees more.
Fidelity increased its number of employees each of the five years
beginning in 1996 to qualify for the tax break. But since 2002, Fidelity
has laid off some 1,200 employees in Massachusetts.
However, under the legislation, the tax breaks were conditional only in
the first five years, even though they are considered permanent. That
means the tax breaks apply to the companies even while they shed
employees.
State Representative J. James Marzilli, an Arlington Democrat, said
large corporations must be forced to pay a fair share of the state tax
burden.
''There has to be a reexamination of these corporate taxes that were
enacted, to see whether they were effective in achieving the goals,'' said
Marzilli.
While Romney has supported the closing of corporate tax loopholes, he
views the single sales factor as a key economic development tool that
should remain in place, said Robert Pozen, Romney's chief of commerce and
labor. Lost jobs are inevitable in the current economic climate, he said,
and it would be unrealistic to expect otherwise.
''That's a basically sound policy decision,'' said Pozen, who was a
senior executive at Fidelity when the company won the tax break in 1996.
Raytheon and Fidelity officials say the ire of some members of the
Legislature is misdirected. Despite Raytheon's early work on the
manufacturing tax break -- and the company's continued public association
with the tax cut -- the Lexington-based manufacturing giant has derived
only $10 million in savings from it over the past six years, said James
Fetig, a Raytheon spokesman.
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n
the mid-1990s, faced with threats of losing industry giants Raytheon Co.
and Fidelity Investments to other states, the Legislature voted a pair of
lucrative corporate tax breaks designed to keep jobs at the two companies
in Massachusetts.
