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Introduction to Teachers
As citizens and taxpayers, we've made a deal with government. The deal is this: we'll
give money to government, and in return, we'll get services.
From: MCAL, A Guide to Teaching about Taxes (1989).
Massachusetts is in a budget crisis, and the adult basic education line item, which funds
our adult literacy programs throughout the state, is not the only area that is vulnerable to
cuts. Many of the other services that our students need are also in danger of being cut:
medical programs, higher education programs, Department of Transitional Assistance
programs, smoking cessation programs, HIV/AIDS research programs, affordable
housing programs, and the list goes on.
What that means is that this time around, as we mobilize to keep our adult literacy
programs alive and well, we recognize that all of these most vulnerable programs meant
to serve the most vulnerable of our state's citizens are also at risk.
The following materials and activities address the budget cuts in terms of creating
revenue generating vehicles through fair taxation. The material poses the questions: who
hurts? who pays? These questions suggest that as we gear up to remind legislators and
the governor about the importance of adult literacy programming, and the devastating
effect that any cuts in these programs will bring, that we also analyze and reflect on what
can be done to stop the cuts to all the services that students and our programs rely on.
The good news is that we are not alone in this educational campaign. In fact, the
following material is available because we were able to tap into existing resources. These
materials have been adapted from training material created by United for a Fair Economy
and the coalition of groups that form the "stop the cuts campaign."
These materials are meant to provide a jumping off point so that students and teachers
can understand the larger picture of the Massachusetts budget crisis and adult literacy
position within that larger crisis.
For additional resources, please go to the following Web sites and materials:
- United for a Fair Economy (UFE) provides basic training materials, a schedule of
free train-the-trainer workshops on the material and a host of other resources
including the material that we have adapted here. Web: www.ufenet.org
- Chuck Collins, Director of United for a Fair Economy, has written a concise,
three-page article that further explains the Massachusetts fiscal crisis and places it
in a larger national context. (See the April 2002 issue of Dollars and Sense magazine or
view the article online: www.ufenet.org/activist/state_budget.html
- More detailed analysis of fair taxation policy can be found at: www.massteam.org/reports.html
- A one-page fact sheet that defines capital gains tax and the Massachusetts capital gains tax
loophole is included at the end of these materials.
- A vocabulary list and cloze exercise for ESOL learners is included at the end of these materials.
We suggest the following sequence for using these materials:
- a warm-up exercise to get people thinking about the state budget cuts
- discussion of the Massachusetts budget: where Massachusetts gets the money for the budget and how money in the budget is spent
- discussion of the budget cuts and how they will affect us
- considering possible solutions: a tax that would raise a lot of money mostly from wealthy people or a freeze on the tax rollback
1. Describing the Problem
This year, the state of Massachusetts faces a budget deficit. That's when the state takes in
less money (revenue) than it spends. People in Massachusetts need to figure out how to
fix this problem. They need to figure out whether to cut state services or to raise more
money for the budget. We're going to learn about the options because the budget affects
all of us.
2. Warm-up Exercises: Common Ground
Option A
Participants stand in a circle and step forward when a brief statement the teacher says out
loud is true for them. (Let people know that they don't have to go into the circle if they
don't want to.) With a large group or when there isn't space to stand in a circle,
participants stand up from their seats when the statement is true for them. Humorous and
comfortable statements at the start get participants warmed-up and break the ice. Then
statements that pertain to the content of the lesson can be introduced. The responses of
participants will help to set the context of the presentation.
As an introduction, you might say: This activity will help us think about some of the
issues that we'll be talking about. Please stand in a circle. Listen to the following
statement or category. If it is true for you then take a few steps into the center of the
circle and look around and see with whom you share common ground.
Take a step or two forward if...
- You (or a member of your family) has ever been a public service worker (e.g., public school teacher, fire fighter, bus driver).
- You or your children have attended public school.
- You have driven on a highway.
- You have used the public library.
- You have ridden on a subway or bus.
- You, or an older person you know, pays for expensive prescription drugs.
- Taxes and how they work are a mystery to you.
- You know someone who has called 911.
- You attend a free adult education class.
Option B
Brainstorm what your class thinks the state budget pays for. One way to do this is to draw
a mind map with the words "state budget" in the center and then ask students to suggest
things the state budget pays for. Once you have a list of some things, ask students to
work in pairs. Each pair should name three to five things they have done that day that in
some way was made possible or supported by tax revenue. Examples might include
many of the things listed above: using public transportation, driving on a state highway,
sending their kids to public school, receiving mail, putting out the garbage for collection.
After 2-3 minutes, a sample of responses are shared with the whole group.
These questions are meant to get people thinking about the ways that they benefit from
programs and services that are funded by our tax dollars. Some of these questions are also
examples of programs or services that may get cut because of the budget problems
Massachusetts is having.
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3. State Budget Crisis: What's Going On?
A. What Is a Budget?
Ask your students to explore how and why they create a budget. Provide the class with a
narrative such as the following:
Maria is a mother of three who makes $24,000 per year. She lives in Boston with her
three children, ages 5, 8, and 11. She works full-time. Her rent is $1,000 per month.
You might ask the following questions: What are Maria's necessary expenses, besides rent? Does she have extra income, or
money left over once she covers all her basic expenses? Does she have a gap between
her income and her expenses? What can she do about this gap?
B. State Spending: Where the Money Goes
Massachusetts has a state budget just like Maria has a budget. Every year, the Governor
and Massachusetts Legislature decide how to spend the money in the budget. Look at
Chart #1: Massachusetts State Budget: Distribution of Spending, Where Does the Money
Go? (Education 22%; Medical Assistance 21%; Human Services 19%; Public Safety 8%;
Debt Service 6%; Local Aid to Cities and Towns 6%; Other-environmental programs,
pensions, running the government-18%) This chart is located in the
Participant Handout Packet (20-page PDF document).
Look at Chart #1. What is the chart about? What services does the state pay for?
Who in the state uses these services? Do you have any questions about the chart?
(Aiming to conclude that we all benefit from these services.)
For ESOL: Provide a chart, either with services listed (to save time), or completely blank.
Students fill in the services and then check off whether the service is provided here and in
their home countries. Then discuss which system they prefer.
| Services the State Government Pays For |
| Service | In Massachusetts | In my country |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
For Math: Chart #1 is a pie graph. If you are studying graphs, this might be a good
opportunity to practice related skills: focusing on the title, comparing the size of the
different pieces, etc. Students could develop a pie chart showing how they distribute
their monthly income. Or they could develop a pie chart that shows how they would
spend the Massachusetts state budget if they were in charge.
C. Sources of Revenue: A Big Picture
To pay for services such as schools, health care, public safety, transportation, and social
services, the state collects revenue from a variety of sources. Brainstorm where you think
the money in the state budget comes from. Then look at Chart #2: Sources of Revenue for
the Massachusetts Budget, Where Does the Money Come From? (Taxes -- excise taxes,
corporate taxes, sales taxes -- 56%; Federal Aid 23%; Miscellaneous and Charges -- driver's
license fees, lottery, public college charges -- 21%)
Review the chart. Help people make personal connections to the taxes listed. Do they pay
excise tax on a car? Do they pay tax on things they buy? etc. What surprises you about
this chart?
For Math: Chart #2 is also a pie graph and so provides another opportunity to practice
skills related to graphs. It could also be used to develop skills on percents.
D. Roots of the Red Ink
- Look at Chart #4: The Massachusetts Budget is $2 Billion Short. (Bucket: Total
Spending: $23.5 Billion; Budget Shortfall: $2 Billion). What are some of the
reasons why the state might not collect enough money to pay for the budget? What
are some costs that might go up? What are some revenues that might go down?
(Write people's answers on newsprint. Look at Chart #5: Roots of the Red Ink, in the
participant packet, and add any reason that wasn't mentioned.)
- These are some of the reasons for the budget crisis we're in. Look at Charts #6 and
#7: Big Budget Busters Over Last 10 Years. What surprises you about the budget
busters?
Over the last 10 years, the Legislature passed a number of tax cuts that take huge chunks
of money out of the budget each year. Almost all the savings go to big businesses and
wealthy people. Low and middle-income people get almost nothing from these tax cuts.
This year, officials think the state will bring in $2 billion less money than it needs to pay
for the budget. As anyone knows from trying to balance a family budget or checkbook,
when there's a deficit, there are basically two choices on what to do: raise more money
or cut spending.
Discuss what you would do if you had less money to pay for your family's expenses?
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4. Who Hurts? Who Pays?
A. Big Budget Cuts
Last year when the Legislature faced this same problem, they chose to cut spending for
several important programs rather than raise more money. The Governor wants to cut
more spending this year.
We suggest introducing the income quintiles, which are used in the next activity, here for
this discussion:
- Economists often talk about the U.S. population in "quintiles" or "fifths" of the
population. So for example, imagine all Massachusetts families lined up in order from
the lowest income to the highest. Then divide that line into five equal parts.
- Let's talk briefly about the sources of income for the families in each group. Ask
students to name examples of occupations for families in each quintile in order. Who, typically, does those jobs?
- Look at Chart #8: Who Gets Hurt? --The Harshest Budget Cuts, which shows some
of the programs that the Governor has said she will cut this year. As each cut in the chart is read,
students decide which group of people will be affected (this may be more than one). They discuss why they think so.
Chart #8: Who Gets Hurt? -- The Harshest Budget Cuts (Child Care, School Programs,
Dental Care, Prescription Drugs, Affordable Housing, Layoffs in the Departments of Mental Health, Mental Retardation,
and Social Services).
B. Who Were the Big Winners Over the Last Ten Years?
The last activity focused on who is most hurt when the budget is balanced by cutting
services. Now we're going to look at who has most benefited from the budget decisions.
This activity shows the changes in family income in Massachusetts from the 1980s to the
1990s. To demonstrate the growth or decline of incomes in this time period, seven
volunteer participants will be asked to come up and stand in the front of the room. (For
this activity to work well, the volunteers will need plenty of space to move forward and
some space to move back.) It is important that the group focus on the top one percent of
the population -- the people who have benefited the most during this time period. It is
also important that everyone gets a chance to see where they fit in terms of income
distribution. Most people think they are "middle income" and it is often a surprise to
learn they are not.
Preparation:
Each volunteer participant will be given an 8.5 x 11" card to hold that identifies their
quintile and shows the income range. Ahead of time, put a line of masking tape in the
middle of the area where the exercise will be.
- This activity looks at what happened to the incomes during the recent period of
economic growth: the late 1980s to the late 1990s. We're going to look at: Who has
gained the most in income over the last decade? We are going to look at the changes
in household income during the last 10 years, a period of significant economic
growth. Now let's have five volunteers come to the front of the room. (Thank the
volunteers then line them up shoulder to shoulder on the line of tape. Give each one a
placard representing one of the five income quintiles.)
- The following demonstration may seem like the childhood game "Mother May I"
(also known as "Giant Steps"). The line of tape the volunteers are standing on
represents the late 1980s, the starting place for each group or fifth of Massachusetts
families. Each person will step forward or backward according to whether their
income grew or declined during this time period. Each step equals a one percent
change, so, for example, two steps forward would indicate an income gain of 2%,
three steps back would indicate an income loss of 3%.
- Between the late 1980s and the late 1990s, here's what happened: (Ask each person
to step forward or backward the correct number of steps according to the table below.)
| Quintile | Steps | Percent
Yearly Income | Range |
| Bottom 20% | 8 steps back | -8% | $0 -- $26,400 |
| Second 20% | 9 steps back | -9% | $26,400 -- 47,040 |
| Middle 20% | 4 steps back | -4% | $47,040 -- 67,527 |
| Fourth 20% | 3 steps back | -3% | $67,527 -- 97,913 |
| Top 20% | 8 steps forward | +8% | $97,913 and up |
- Watch what happens when we break that top quintile down even further and look at
the richest five percent and the richest one percent of Massachusetts families. Rather
than tear off the arm of our highest quintile volunteer, let's have two more volunteers
from the audience. (Hand the volunteers the appropriate placards and announce the
income ranges.) The volunteer representing the top five percent takes eighteen steps
forward. The top one percent takes about 50 steps forward. (Fifty steps is our best
estimate for the top one percent's income gain.)
| Quintile | Steps | Percent
Yearly Income | Range |
| Top 5% | 18 steps forward | +18% | $170,522 and up |
| Top 1% | ~50 steps forward | +50% | $373,000 and up |
How did these wealthy people make so much money? What other sources of income,
other than work, do they have? Be sure that income from the sale of stock, property, and
other assets are included in the list.
- In summary, look at Chart #9: Change in Income in Massachusetts (Late 1980s - Late 1990s).
Who were the big winners over the last 10 years in Massachusetts?
During this time period, there was a lot of growth in income, but as we can see, the
distribution of that growth was very uneven. The top 20% as a whole did very well and
certainly much better than all the other quintiles, which went backwards. However, the
ones who really made out were the top 5%.
For Math: Chart #9, a bar graph, provides a good opportunity to practice graph
interpretation skills. It's fairly complicated, but uses percents, money, and negative
numbers.
C. Review of Key Points
- Massive budget shortfall.
- In the 1990s, Massachusetts gave billions of dollars to wealthy people and corporations in tax cuts.
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5. What Can We Do?
A. An Important Part of the Solution: The Capital Gains Tax
There are many options on the table for how to raise revenue. (Briefly name the options
listed on Chart #13: What's On the Menu for Making Up the Budget Shortfall?) We're
not going to review all these options. We will focus on the capital gains tax proposal and
freeze of the tax rollback because they are the most fair ways to help close the budget shortfall.
B. Taxing Capital Gains the Same as Wages
Listen to this explanation of a tax that would be paid almost exclusively by wealthy
people: The Capital Gains Tax.
A "capital gain" is income a person gets from selling investments ("assets") such as
stocks. (Please see the Vocabulary/Cloze Exercise for definitions.) Looking back at our
quintiles, which groups do you think have the most assets? What assets, besides stocks, do they have?
Look at Chart #14: Who Has Income from Capital Gains?
| Lowest 20% | 2% |
| Second 20% | 7% |
| Middle 20% | 15% |
| Fourth 20% | 18% |
| Top 20% | 47% |
| Top 5% | 61% |
| Top 1% | 94% |
What does this chart tell you?
Nearly all wealthy people in Massachusetts have capital gains. Almost no low-income
people and very few middle-income people have capital gains. That's why most of us
don't know what they are.
Massachusetts used to tax this money, but now most of it is not taxed. Specifically, an
investment held for a short time gets taxed, but the longer the investment is held, the
smaller and smaller the tax. Investments held longer than 6 years are not taxed at all.
Which groups do you think benefit from this low capital gains tax?
The wealthiest one percent get more than three-quarters (76.2%) of the
capital gains tax cut. Those few low- or middle-income people who do have capital gains
get very little. For a good example of the unfairness of these tax rules look at Chart #16:
What's Fair? The Red Sox Owners will pay no state taxes on the sale -- over $200 million
in income. (Discuss why that is.) Laid-off Workers will pay state income tax on unemployment benefits. (Discuss why that is.)
If the Red Sox owners had to pay a 5% tax on the sale of the team, how much money
would this generate for the state?
Many people believe that, to be fair, income from capital gains should be taxed at the
same rate as income from working at a job. If Massachusetts taxed capital gains the same
as wages, almost all the tax would be paid by wealthy people. This tax would raise at
least $266 million next year, which would help us to stop the cuts in education, health
care, childcare, housing, and social services that are hurting so many people. (Chart #17:
How Much Money Could We Raise If We Taxed Capital Gains the Same as Wages?)
2002: Under Current Law: $394 million; if we taxed Capital Gains: +$344 million
Total 2002: $738 million
2003: Under Current Law: $377 million; if we taxed Capital Gains: + 266 million
Total 2003: $643 million
C. Freezing the Tax Rollback
The tax rollback was passed with the understanding that there would be no cuts to
programs. Now we're left with the choice of saving some money per family, or saving
the programs that we said (at the beginning of the guide) serve everyone.
Here's how much money three families would save if the tax rollback continues as
scheduled:
A family earning $26,400 per year, would pay the following in state income taxes based
on the current tax rate and the new rate based on the tax rollback:
$26,400 x .056 = $1,478 the 2001 state income tax rate
$26,400 x .053 = $1,399 the state income tax rate if the rollback continues for 2002
$26,400 x .05 = $1,320 the tax rate once the rollback is completed on Jan 1, 2003
In 2002, this family would save $79.
In 2003, this family would save $158.
A family earning $50,000 per year, would pay the following in state incomes taxes...
A family earning $100,000 per year, would pay the following in state income taxes...
You can complete the information for the family earning $50,000 and $100,000, or you
can have students compute these numbers. Once students have completed the
computations, ask the following discussion questions:
- Who will get the most benefit from the tax rollback?
- Are the benefits that each family will receive worth cuts in services?
Next, use the two cartoons, Freeze People and
Leave No Child Behind. These cartoons are included at the end of these materials.
1) Freeze People
In order to understand the placard, you need to know that "freeze" has two meanings. For
ESOL, you can build up to this by asking:
- What do you see in the picture? (Homeless people, winter, night, protester, etc.
Include, "What's the building in the background?")
- Why is the man carrying a sign? Based on what we've been talking about, what does the sign mean?
- Why do you think he wants to "freeze people"?
- What do you think the woman means when she says, "At least you know where he
stands?"
2) Leave No Child Behind
- What do you see in the picture?
- Who said, "Leave no child behind!" in real life? What did he mean? (President George W. Bush)
- In this cartoon, what does "Leave no child behind" mean?
After you have discussed the cartoons, ask students what they think about freezing the tax
rollback and taxing capital gains as the same rate as wages. Do they agree or disagree
with each revenue idea? Why? Do they support any of the other revenue ideas (a
cigarette tax, an alcohol tax, etc.)? Why or why not? Who hurts? Who pays?
Remind students that if and when they call legislators to support adult basic education
funding, that they can also express an opinion, if they want to, about the tax rollback and
the capital gains tax (and any other ways to generate more revenue).
D. Taking Action
There is a big coalition of groups that have come together to stop the cuts in programs
and services. Some of the groups involved include unions, community organizations,
anti-poverty activists, housing activists, seniors, teachers, etc. They are all united in the
belief that Massachusetts needs to raise revenue instead of cutting more programs and
services. This coalition is doing grassroots organizing, lobbying legislators, public
education like this class, and fundraising.
Is there anything we'd like to do together?
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6. Wrap Up and Evaluation
Option A
What do you think is the most important thing you learned about the state budget and the
current budget problem? What do you think that other people should know? How would
you explain the problem to them? What would you like to know more about?
Option B
Students listen to one or both of the following quotations read aloud:
- "Taxes are the price we pay for civilization." Oliver Wendell Holmes
- "The American people are being overcharged." President George W. Bush
After each quote is read, ask students to go to one of the four corners of the room
according to whether they strongly agree, somewhat agree, somewhat disagree, or
strongly disagree with the statement. Students in each area discuss with each other why
they chose that position. A representative of each group can briefly sum up the reason
for the whole group.
| Vocabulary |
| Asset | Something of value that one owns |
| Wealthy | Rich; having many assets; having enough money to invest so that your
assets are constantly growing |
| Income | Money you receive when you work or sell an asset |
| Expense | An expenditure of money; a cost |
| Revenue | All the income that comes from one source |
| Deficit | The amount of money that falls short when expenses are greater than revenues |
| Budget | A plan for how much money will be spent in expenses and how much will be received in revenues |
| Balanced budget | When revenues and expenses are equal |
The Massachusetts Budget Problem
The state of Massachusetts needs to have a _________________________ .
Right now, the _____________________s are higher than the
___________________s . If we don't fix the problem, there will be a
_____________________ . Some people want to solve the problem by
cutting services. Others want to raise more money by taxing people who are _____________________ .
I think...
________________________________________________________
________________________________________________________
________________________________________________________
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Capital Gains Tax Campaign and the Current Loophole
February 2002
What are capital gains and what will the return to a Massachusetts' capital gains tax mean?
Capital gains are the income from the sale of stock, commercial property or any
investment assets. For example, when one sells a racehorse, that is an example of
accumulating capital gains. Since the 1994 technical amendment that was passed by the
former Massachusetts governor and legislative leadership without public debate or
knowledge, Massachusetts' tax laws include a capital gains tax loophole that allows the
sale of investment assets to go untaxed or under taxed, in some cases.
The state's current capital gains tax law allows the top one percent of taxpayers with an
average income of $1.5 million to receive approximately three-fourths (76%) of the benefits of this
loophole. On average, Massachusetts residents with an average income of $1.5 million
save $17,690 year. The savings from these residents exceeds the annual income of 23%
of the state's population.
Among the bottom 80% of Massachusetts taxpayers, only one in nine report any capital
gains income whatsoever. On average, middle-income families save just $14 a year from
the capital gains loophole, much of which, according to H&R Block, is spent paying tax
accountant firms to process the complicated capital gains tax loophole documents.
In addition, retirees and homeowners will not be affected by the return to a capital gains
tax. Retirement account earnings are taxed as normal income, not as capital gains, while
$500,000 in profit from the sale of a home is already free from taxes. Thus most families
get no benefits at all from this loophole, since they don't technically accrue any capital gains income.
Given that nearly all other types of income -- wages, salaries, dividends, pensions, rental
income, IRA withdrawals, and even unemployment benefits -- are taxed at 5.3% falling to
5% starting in January, 2003, it seems only fair to tax income generated by the sales of assets.
Do economists believe that the capital gains tax stimulates investment?
Some do, but many are wary of this theory when it is applied to state economies, in part,
because the tax break is not limited to investment in Massachusetts firms or industry.
Investors receive the tax break whether the investment is in a firm in California or Japan,
for instance, and investing in other countries or states with profit gained from a sale of an
asset does not help the Massachusetts' economy.
But even when tracking the effects of a federal capital gains tax cut, a 1998 report issued
by the Congressional Budget Office projected that 10 years after passage of a significant
federal capital gains tax cut, the national economy would have grown by 0.03 percent -- about the
amount it grew every two days last year.
How much state revenue will be stimulated through a return to a capital gains tax?
Economists predict that the return to a Massachusetts capital gains tax will produce 270 million dollars during FY2003.
Will small and medium sized businesses pay capital gains if this loophole is closed?
All businesses will pay the capital gains tax if this loophole is abolished given that profit
from the sales of these businesses are part of the owners' income. In other words, in the
same way that a worker at a factory or a company, pays income tax, business owners will
also be responsible to pay capital gains as it applies to their income investment assets.
Is there a bill currently in the Massachusetts House of Representatives?
Not yet. However, the House leadership will most likely address the tax and revenue
issues within the next few weeks before they begin to campaign publicly for office. Tax
bills are initiated in the House of Representatives so that the capital gains tax bill will
come from there.
Deborah Schwartz of the Adult Literacy Resource Institute (ALRI) and Andy Nash of the New England
Literacy Resource Center (NELRC) compiled the information for this guide.
Jim St. George, Executive Director of the Tax Equity Alliance of Massachusetts (TEAM), Elizabeth Toulan of the Family Economic
Initiative, Jordan Schwartz, Infrastructure and Development, World Bank, and Amy
Gluckman, Dollars and Sense Collective, provided the content.
Hello all--
Just thought I'd drop you a line to let you know how successful your
curriculum was in my class. It was quite engaging, because of both the
variety of activities and the information covered. The language of the
teacher's guide and the charts was perfect for my intermediate ESL class.
The students reported that it clarified the topic, of which they had
virtually no prior knowledge. I've heartily recommended the curriculum to my
coworkers. Thanks very much for your time and energy putting it together!
Diana Satin
Jamaica Plain Community Centers
Adult Learning Program (e-mail message, May 1, 2002)
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