Massachusetts Capital Gains Tax - A Boon Or A Curse?

November 25, 2004
By Srinidhi Goenka

In the USA, the laws governing capital gains tax differ from state to state. In Massachusetts nearly all types of incomes are taxed at a rate of 5%. Only the Massachusetts capital gains tax is either tax free or taxed at a much lower rate.

In the state of Massachusetts, the level of taxation employed on the people is very low. So, the average middle class is actually not affected by capital gains tax in a big way. For example, retirement earnings are considered to be normal income and not capital gains

So these are taxed according to income tax rules and not as capital gains. Also, as $500,000 profit from the sale of home is tax-free, most families are not affected by capital gains tax in Massachusetts.

Critics Want To Increase Taxes - Why ?
In fact, critics want to raise the level of taxation employed in this State in order to prevent budget cuts. In the 1990s, 42 tax cuts were made. As a result, over the years, the budget for education, affordable housing, job training, old homes and other such services which are provided by the state, has gradually been reduced due to revenue shortfalls.

Critics argue that the low level of capital gains tax does not benefit the average man in any way and is most beneficial for the rich. According to them, the top 1% of taxpayers i.e. people with an average income of $1 million, receive 76% of the benefits due to low capital gain taxes.

They also say that since there are no special tax breaks for investments made in Massachusetts, investors are not attracted to the state. This is because there are no special considerations whether the investment is made in California or Ohio or anywhere in the world.

Moreover, the system of filing capital tax gains is rather complicated in Massachusetts. It is not only time-consuming and confusing, but the costs involved are often more than what middle-class people can actually save from the benefits derived from the tax-free environment.