All Massachusetts workers will see a reduction in their income taxes when the new year dawns on Thursday and thousands of minimum wage earners will simultaneously see a spike in their take-home pay.

Triggers established under a 2002 law have been met to force the income tax rate to fall from 5.2 percent to 5.15 percent, a tax reduction worth about $140 million per year that will bring the income tax rate another step closer to the 5 percent rate approved by voters in 2000.

A more recent law, approved in late June, will cause the Massachusetts minimum wage to rise from $8 to $9 an hour, the first of three one-dollar annual increases in the wage floor. It’s the first minimum wage hike in Massachusetts in seven years. The tax cut and wage floor increase are taking effect as Governor-elect Charlie Baker, who has pledged to improve the business climate in Massachusetts, prepares for his inaugural activities and swearing-in, which will be on Jan. 8, 2015.

Minimum Wage Hike

On Jan. 1 the first of three annual $1 increases in the minimum hourly wage will grant some of the state’s lowest paid workers a government-mandated 12.5 percent raise. The current minimum wage is $8 per hour, and the increase to $9 per hour in 2015 is expected to have some ripple effects on those just above that pay scale.

On the Associated Industries of Massachusetts blog, Karen Choi wrote that the increase will cause employers to give pay bumps to those who "earn slightly more than minimum," and said "human resource professionals are scrambling to develop multi-year approaches to the minimum wage that will require both actual paid rates and salary ranges to be adjusted."

One-dollar increases will follow on Jan. 1, 2016 and Jan. 1, 2017 when the minimum wage will reach $11 per hour. The Legislature passed this summer, putting an end to a campaign that had aimed to put the question before voters. The Massachusetts Retailers Association and others argued the wage increase would hurt employment and make the Bay State less business-friendly.

The Massachusetts Budget and Policy Center estimates the first increase will affect 280,000 workers making less than or just above $9 per hour, and the law will eventually raise the wages of 605,000 people. State officials were unable to say whether any state government workers or contractors make the minimum wage.

Some activists are mobilizing for further wage increases, arguing fast food employers around the country should pay their workers $15 per hour. President Barack Obama has advocated raising the federal minimum wage from $7.25 to $10.10 per hour.

Income Tax Cut

The income tax rate on Jan. 1 will fall from 5.2 percent to 5.15 percent, delivering a slight bit of tax relief to workers and further complicating the state budget picture. The decrease will be the third after the hitting of economic growth triggers set up by the Legislature, which froze the income tax rate at 5.3 in 2002.

"Time has passed and the economy has improved, and now we have only three more steps and we’ll be at 5 percent, which was the goal," said Michael Widmer, head of the business-backed Massachusetts Taxpayers Foundation.

Bay State voters approved in 2000 an initiative petition, Question 4, calling for the reduction to 5 percent by 2003, but the lawmakers halted it and put the aforementioned triggers in place. The tax rate could hit 5 percent, at the earliest, in January 2018, 18 years after voters first called for it to arrive at that level by a 56.4 percent to 38.6 percent margin.

According to Widmer, the total decrease will take $1 billion out of the state budget; the 2015 reduction will cost $150 million on an annualized basis. "It makes our fiscal situation much more difficult," he said, noting the hole in the state budget that the Patrick administration is attempting to patch and which will likely be left to the incoming Baker administration.

"There’s a downside to this in terms of trying to fund important state programs," Widmer added, "but I don’t think there’s any serious effort to change the triggers."

According to an analysis from the left-leaning Massachusetts Budget and Policy Center, low and moderate income households will gain less than $20 per household.

"Upper middle income households … will receive cuts averaging between $20 and $40 a year," the center said. "The top 1 percent of households, by contrast, will receive tax cuts averaging more than $900 a year."