King of the Yuppie Republicans: Massachusetts's Bill Weld is a leading light of the Tight Money/Loose Morals Republicans. But how tight is his money really" A look at the current state of Taxachusetts - Massachusetts Governor William F. Weld

National Review, Sept 26, 1994 by Richard F. Adair

Massachusetts's Bill Weld is a leading light of the Tight Money/Loose Morals Republicans. But how tight is his money really? A look at the current state of Taxachusetts.

GOVERNOR William F. Weld has cultivated a national reputation as a different kind of Republican politician, a reputation calculated to appeal to a new breed of voter. The educated classes have come to doubt the linchpin of the progressive faith: the belief that an enlightened, expanding public sector, fueled by ever higher taxes, can solve all social problems and drive the economic engine of a mixed economy. But despite their growing misgivings about the liberal economic agenda, many young professionals are leery of the danger, real or imagined, that conservatives are trying to impose fundamentalist religious values on American public policy.

Enter Bill Weld, elected governor of arguably the most liberal state in the nation, Massachusetts, in 1990, not generally a good year for Republicans. Weld claims to be pro-choice and pro-gay-rights but anti-tax, jettisoning the cumbersome baggage of the Religious Right while espousing economic principles that could move the Republican Party toward majority status. He took charge right away, so the story goes, slashing spending, slashing taxes, balancing the books, and putting the state's fiscal affairs back in order. That is the image; the real story is a bit more complicated.

To understand Massachusetts voters' swing toward the Republican Party in 1990, one must grasp the magnitude of the disaster that occurred in the last years of the Dukakis administration. Having been ousted by Edward J. King in the 1978 Democratic primary, Michael Dukakis returned to office in 1983 just in time to see the state's economy take off. High technology, financial services, booming real-estate development, and a generous infusion from the Reagan defense buildup resulted in an annual rise in personal income averaging about 8 per cent by the mid Eighties. Under the impetus of new and expanded programs, the state bureaucracy flourished, as did the private army of contractors and consultants--the "technocrats." Best of all, from Dukakis's point of view, all this happened without his having to run deficits or raise taxes. As the good times rolled on, Dukakis took full credit for the Massachusetts Miracle.

No Escape

THE "miracle" began to unravel at a very inconvenient time for Mr. Dukakis, right in the midst of his 1988 presidential campaign. The surpluses accumulated in the early years of his administration were being spent to balance the budget, which was ballooning with double-digit increases. As the state's economy turned sour, the optimistic revenue projections on which the budget for fiscal year 1988 had been based failed to materialize, and Dukakis had to order departments not to spend appropriated funds. A general tax increase was politically unthinkable for the presidential candidate, but the sales tax was extended to cigarettes, on top of the existing excise tax. The FY 1989 budget also included revenue-enhancing features such as doubling the minimum corporate tax and vesting in the governor the authority to raise state fees. As Dukakis campaigned for President bragging about how he had balanced another budget, the state began the short-term borrowing of hundreds of millions of dollars to pay its weekly operating expenses.

In 1989 and 1990 Dukakis and the legislature imposed a cascade of major tax increases in a futile attempt to stanch the flow of red ink. The 5 per cent sales tax was extended to energy and telecommunications. The gasoline tax was raised from 10 cents to 21 cents per gallon. The excise tax on deeds was doubled. But it was what happened to the state income-tax rates that left taxpayers reeling. On July 26, 1989, the legislature approved a supposedly temporary rate increase, raising the flat-rate income tax from 5 per cent to 5.375 per cent effective June 30, 1989, and doubling the increase, for a new rate of 5.75 per cent from January 1, 1990 to January 1, 1991; on that date both increases were to expire, returning the rate to 5 per cent. But before the taxpayers could catch their breath, on July 18, 1990, the legislature raised the rate again, retroactive to January 1, making the 1990 rate 5.95 per cent, and also voted in a further temporary increase to 6.25 per cent from January 1, 1991 to January 1, 1992. And while the July 1989 increase had been pretty much restricted to wages and salaries, the July 1990 act extended the new rates to interest from Massachusetts bank accounts, rental income, pension and annuity income, and IRA and Keogh distributions; it also raised the tax on capital gains and out-of-state interest and dividends from 10 per cent to 12 per cent. There were cuts in state services and local aid, and still the budget could not be balanced.

Evolution of a Candidate

IT WAS against the backdrop of hemorrhaging deficits and spiraling taxes that the political evolution of candidate Bill Weld began. If ever there was a year in which a Republican could be elected governor of Massachusetts, 1990 was it. But in the summer and fall of 1989, when the potential candidates began jockeying for position, the wealthy Yankee Weld had an image problem among Republican regulars. Long out of power, the Massachusetts Republican Party had changed. The new activists were definitely more conservative and somewhat alienated; the noblesse-oblige liberalism of the Brahmins was no longer fashionable.