Resolved: the state sales tax should be reduced to 5%

Here’s a tasty debate topic: you know how the sales tax got hiked from 5% to 6.25% back in 2009, when the state was in the throes of the great recession?  Governor Patrick was, for a long time, very leery of going along with the hike, but was more or less forced to sign it once the legislature managed to pass ethics, pension, and transportation reforms that he had said were conditions for his approving it.

Now, as we all know, the sales tax is among the most regressive of taxes.  Yes, there are exemptions for food and clothing, which certainly mitigate its pernicious effects.  But nonetheless, sales taxes tend to hit people on the lower end of the income scale hardest, and therefore should be kept as low as possible.  Furthermore, if the goal is to get consumers to buy more stuff, thereby stimulating demand for goods and services, thereby creating more jobs (remember that increased demand is the real job creator), other things being equal, it would seem like a good idea to keep the sales tax low.

Seems to me that hiking the sales tax was something of an emergency action that the state had to take because of the dire financial straits in which we found ourselves back in 2009.  Things are better now.  So here’s my proposed topic for debate: the sales tax should be reduced back to 5%, where it was for many years before 2009, and where IMHO it belongs.  Doing so would stimulate demand, which helps create jobs, and would demonstrate the legislature’s good faith in that once the emergency that justifies a tax hike no longer exists, the tax hike should be reversed.  Yes, I know something like this failed last year.  But things are better now than they were even a year ago.  I’d be OK with waiting until the “fiscal cliff” nonsense is resolved in Washington, but assuming that gets done in an acceptable way that doesn’t harm the states, what’s the argument for maintaining a regressive emergency measure when the emergency is gone?

Discuss.

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Discuss

58 Comments . Leave a comment below.
  1. As always...

    …the question has to be how to pay for it, and as someone who can think of plenty that we can still spend on I’m leery of cutting. On a state-by-state basis this isn’t ideal because the competition between states, which I’m more sensitive to living as close as I do to NH. However, I’ve been more sympathetic to sales taxes because it seems it only matters how much you have if you use it, plus the superrich spend plenty and if you allow for generous exemptions it could be quite progressive.

    • It's not that progressive

      Sure food, drugs and most clothing are exempted, but plenty of needed household items aren’t. It’s not “progressive,” we just don’t have a sales tax that’s as harmful to the middle and working classes as some other states.

      It would be a neat idea to try to create a more progressive sales tax by exempting large swaths of regular household items, but the likelihood of that ever happening would be smaller than pigs sprouting wings.

      We’d be more likely to pass a progressive income tax…

      RyansTake   @   Tue 20 Nov 11:31 PM
  2. Let's talk tax fairness first

    Things are better, but not great. Right now, everybody’s budgets are still struggling. Our cities & towns, as well as state transportation, health, education, environment, housing, public safety (you name it) services are struggling to meet their tight budgets, and many important programs and services have been cut. And I’m all for reducing regressive taxes, but only if it’s paired with aggressive, progressive new sources of revenue. That means pass An Act to Invest In Our Communities, which would restructure our tax code to make it more fair (progressive) and raise new revenue for all the above services. Make the wealthy pay their fair share, but really, it’s about investing in the things we all know we want: good roads, good public transit, good schools, good health care services and public health, a cleaner environment, and more.

    On the margins, I’m also supportive of other ways of bringing in new revenue to invest in the programs we need. Things like investing in public health by closing loopholes on tobacco products that aren’t subject to the same cigarette taxes. I’m open to the idea of taxing sugary drinks, too, because diabetes is pretty regressive, too. But fundamentally, we need a tax system that is more fair and that brings in new revenue.

    Reducing the sales tax is a bad idea while so many are struggling to get by. I’m not sure how we would make it up. I think we should keep the sales tax where it is and focus on investing in our long term growth.

    • WOW

      In Illinois we wish we had it this good, in Cook County it is still 10.25%, a proposal to lower it half a cent to 9.75% has failed due to the budget shortfall. In the rest of the state it is 8%. Also everything is taxed. I mean everything. Clothes, food, city services, there are no exemptions like there are in MA. I will literally punch a person in the face who calls it Taxachusetts. It may not be as low as it is in stupid NH, but its lower than most places and there are exemptions on food and clothes. My girlfriend has little shopping sprees whenever she comes home with me for the holidays-not even a joke.

      So yeah this debate is one of the many luxuries our state enjoys, along with great and fully funded education systems, even in our inner cities, Obamacare before it was cool (since Romney is ashamed he doesn’t get the credit!) and gay rights before it was cool. We are a tremendously lucky state and I can’t wait to someday move back. The funny thing is most of my friends are moving there too from out of state so our future is bright too. Really guys, have fun with this debate but either way the pendulum swings on this just remember you have it better than me.

    • sales tax, not revenue

      Reducing revenue right now is a bad idea.

      Reducing the sales tax is not such a bad idea.

      Our main budget problem in Massachusetts is that our state income tax has been chronically too low, so we make up for it with fees, property taxes, and most recently a sales tax hike. We don’t have it as bad as New Hampshire, where property taxes cause endless fights and each town has to choose between ridiculously high property taxes vs. no roads or libraries and bad schools, but we can certainly do better.

      We should reduce the sales tax. And have a state-funded program to induce cities and towns to reduce property taxes, too.

      And we should make the state income tax 6%.

      I agree that doing the former without the latter could be counterproductive.

  3. Comprehensive tax reform

    Our full-time salaried and benefited elected officials in Washington and Beacon Hill have failed to develop and implement taxation that is fair, sustainable and adequate for the functions of society and government itself.
    How is it that we stand for this inadequate level of service from the people we pay to work for us? We get the government we deserve (rant off).
    Sales tax is onerous and regressive. The increases have had a measurable “hit” upon our household eroding quality of life by subtly taking more and leaving less discretionary income with which to pursue the activities, purchases and even nutrition choices we once had.
    It would be a political win for the Governor and legislators to prioritize a package of reforms at the beginning of the session in January 2013 that works in tandum with the fy 2014 budget process. It means work. It means leadership. It means doing their jobs. It’s not rocket science. It is numbers, budgets and setting priorities for what we want and need.
    We can strongly encourage revenue reform as a priority for leadership through blogs, emails and calls.
    Cynically, I am not holding my breath. I suspect that our good Governor will be gone from the corner office long before any golden-calf casino gambling revenues relieve our property tax or sales tax burdens. And, I don’t think it troubled the Governor too much to raise the sales tax. He just bargained well to get the legislators working.

  4. Dave, Interesting question

    Given that 16% of sales tax revenues are dedicated to the MBTA and it and the the Mass DOT have operating budget deficits, I would be concerned with reducing the sales tax without structural reforms.

    We could reduce the sales tax if we move Big Dig debt off the books of the MBTA and possibly raise the gas tax to help fund the MBTA and DOT.

    Of course not everyone’s budget is struggling as commented above. Attleboro is a good example. They have not laid off a single teacher, fire fighter or policeman and have the biggest rainy day fund in the city’s history.

    I think it is hysterical that afertig would suggest that reducing the sales tax is a bad idea “while so many are struggling.” Really? Reducing taxes on people when people are struggling is a bad idea?

    Ultimately, Massachusetts has a spending problem and not a revenue problem. Let’s move the Big Dig debt back to the State budget, raise the gas tax and reduce the sales tax to 5%.

    In over $50 billion in state government spending there is enough money for the government services we need.

    • Who's Dave and other examples of ignorance.

      The editor prefers David. FYI.

      I think it is hysterical that afertig would suggest that reducing the sales tax is a bad idea “while so many are struggling.” Really? Reducing taxes on people when people are struggling is a bad idea?

      Afertig made his argument clear, and accounted for why he thought it was better to keep the taxes where they’re at… including revenue that’s badly needed to help people struggling.

      Afertig:

      Things are better, but not great. Right now, everybody’s budgets are still struggling. Our cities & towns, as well as state transportation, health, education, environment, housing, public safety (you name it) services are struggling to meet their tight budgets, and many important programs and services have been cut. And I’m all for reducing regressive taxes, but only if it’s paired with aggressive, progressive new sources of revenue. That means pass An Act to Invest In Our Communities, which would restructure our tax code to make it more fair (progressive) and raise new revenue for all the above services.

      So, um… Maybe Attleboro is doing just swell right now, but there are 350 others to account for, and loads of services directed to those who are struggling the most have been blown to smithereens.

      Nice straw man, though.

      Now we get to the point in your post where things just don’t make sense. You:

      Given that 16% of sales tax revenues are dedicated to the MBTA and it and the the Mass DOT have operating budget deficits, I would be concerned with reducing the sales tax without structural reforms.

      Ultimately, Massachusetts has a spending problem and not a revenue problem.

      So, is it the revenue problem that has the MBTA practically in its death throes, or a spending problem? I’m so confused.

      And sure, it would be great if the state just took on all the debt it plopped on the MBTA from the Big Dig (I assume that’s what you mean by ‘restructuring’), but where exactly is the state going to get that money? That’s $125+ million in debt payments, a lot more than we pay out in scholarships to the entire state higher ed system combined, and almost half of what we budget for the entirety of the department of state police.

      Pretty much everywhere you look, after more than a decade of deep cuts, there’s not much skin on the bone to cut, never mind fat.

      So, I’m going with revenue problem, NOT a spending problem.

      Moreover, our state tax rate buoys my argument. Our state tax rate at about the halfway point across the nation. Given that Massachusetts is one of the most expenses states in the country to live in, our tax rate would no doubt be even lower if such studies accounted for cost of living, health care, etc.

      So, um, what spending problem?

      Not only have you failed at doing that kind of basic research, you’re also getting facts wildly wrong.

      In over $50 billion in state government spending there is enough money for the government services we need.

      Our state’s general budget — you know, the things we spend money on — isn’t $50 billion, or anywhere close. It’s almost half that. It seems like you should have an accurate account of what exactly our state is spending before you rail against, you know, the state’s spending.

      RyansTake   @   Wed 21 Nov 12:46 AM
  5. if it isn't broke... why fix it? If it is broke... why not fix it right?

    So here’s my proposed topic for debate: the sales tax should be reduced back to 5%, where it was for many years before 2009, and where IMHO it belongs. Doing so would stimulate demand, which helps create jobs, and would demonstrate the legislature’s good faith in that once the emergency that justifies a tax hike no longer exists, the tax hike should be reversed.

    The many years before 2009 were markedly brimming with neglect, incompetence, outright abuse that skirted criminality and actual criminality. Maybe the ‘belongs’ with which you fondly recall really speaks to the tax belonging to the time: maybe the tax rate at the time reflected the quality of public servant that we had; which ‘servants’ did a lot less, with only a little less, with more self-congratulation than they merited, leaving the Commonwealth much the less for it.

    You see: lowering, or indeed abolishing, a sales tax because it is a regressive tax is not the same thing as lowering sales tax because it will stimulate demand. I can readily get get behind the one and yet find the other a dubious proposition. The notion of ‘regressive taxation’ tries to understand the cost borne by the taxpayer, in the regressive scheme, in purchasing goods and services they’d otherwise… well… already purchase: that’s what is unfair about regressive taxation: the captivity of the taxpayer. And the already wealthy aren’t likely to be deterred or encouraged by the taxes rates: that’s what’s unfair about wealth: the total lack of captivity of the wealthy… So somewhere between spending at need and spending at whim is a small percentage of taxpayers who might make a larger purchase based upon the sales tax, but I doubt it’s more than epsilon in either size or duration.

    However, this is not to indicate that I oppose a reduction of the sales tax: by all means let us rid ourselves of regression where ever we find it. But let us do it because we detest regressive means of taxation and because we champion progressive notions of taxation and not because of some purported (and dubious) stimulative effect. if revenues at present are good, and by many indications they seem to be, we should seek ways to make such a sales tax reduction revenue neutral. I would even argue for an increase in revenue, purely on the grounds of progressive taxation being a wholly worthy endeavor.

    One oft neglected fact in our recent election was this crystalline gem of glistening economic certitude: Mitt Rmoney made the bulk of his fortune under the Clinton tax rates; One is tempted to think that Romney might have tried to make the case that he’d be even wealthier, and thus even more of a job-crater (that is to say his demand side jollies would have been well stimulated…) if the Clinton rates had never been implemented… or at least make the case that he’s second-tier money, having scraped through because some other, far more brilliant entrepreneur passed on the opportunity because of the excess of taxation… leaving Rmoney to fill the gap… except that the notion, and thus the irony, appears never to have occurred to him.

    Between that salient fact and the other salient fact that, when asked, Mitt Rmoney didn’t know what precise rate he was taxed at, the conclusion that tax rates aren’t that important to wealthy people is pretty nigh inescapable. And, really, all that is just a passive aggressive defense of progressive taxation…

  6. Great idea

    The tax should be returned to 5% as soon as practicable. It was raised as an emergency measure, and the emergency has passed.

    • The "emergency" which prompted the tax hike

      was the MBTA. That emergency hasn’t passed.

      RyansTake   @   Wed 21 Nov 12:49 AM
      • I'm just not sure that's true.

        Yes, transportation was part of the discussion. But here’s an early article about DeLeo’s initial proposal to hike the sales tax. It doesn’t mention the T at all. It mentions a $3.6 billion budget gap that the state had to close somehow because revenues were plummeting because of the recession. And it talks a lot about how Patrick had wanted to increase the gas tax, and DeLeo didn’t want to, and instead proposed dedicating about a third of the revenue from the sales tax hike to “transportation.”

        • If I recall correctly...

          … (and that is not a guarantee)…

          Yes, transportation was part of the discussion. But here’s an early article about DeLeo’s initial proposal to hike the sales tax

          And that very article says, thusly ” DeLeo’s plan appears designed to blunt support for a gas tax hike, which Patrick has pitched as an alternative to major turnpike toll[...]” that Patrick proposed in order to “to help close a projected 20-year, $20 billion transportation infrastructure deficit.“, which gas tax hike was proposed in specific response to turmoil at the turnpike authority (which has since been rolled up into the greater transportation authority.) and the wider transportation infrastructure that had withered in the shadow of the Big Dig: In fact, the Pike was about to go belly up because Lehman had gone belly up leaving great exposure to UBS which was on the verge of calling in markers on some several hundred million dollars of criminally stupid swaps the Pike had entered into…

          So I would submit, as Ryan does above, that the infrastructure problems remain: which problems were the impetus for the targeted gas tax, which was denied by the lege in favor of the catch-all sales tax, only a portion of which went to infrastructure.

          And so I would, in fact, be in favor of repealing the sales tax increase if we go with the gas tax that Governor Patrick had proposed.

          • I'm fine with that.

            The gas tax is a much, much better way of dealing with transportation issues.

            • Definitely

              Gas purchases are the functional equivalent of investing in paper newspapers: we need to move away from a fossil-fuel based economy and toward one based on renewable energy. The first states to do that will be rewarded with more jobs, higher real estate prices, and an overall improved standard of living.

            • Are we forgetting ...

              … that gas taxes are equally or more regressive than sales taxes (which at least exempt necessities like food and clothing)? If we don’t like the sales tax for being regressive, the answer should certainly not be to lower the sales tax in favor of the gas tax.

              Also, while I agree that gas taxes have traditionally been a great way to fund transportation expenses and should certainly be increased in an effort to incentivize a move away from fossil fuels, we need to look for other ways to fund public transportation other than the gas tax. If and when we’re finally successful in largely moving away from gas powered cars, where would that leave us if public transportation is dependent on the gas tax? Sure, this won’t be for some time yet, but shouldn’t we address this concern now rather than wait until the very last minute?

              • gas tax is less regressive than a sales tax...

                … as a sales tax is not optional.

                … that gas taxes are equally or more regressive than sales taxes (which at least exempt necessities like food and clothing)? If we don’t like the sales tax for being regressive, the answer should certainly not be to lower the sales tax in favor of the gas tax.

                But driving less, or not at all, is indeed an option. And a gas tax specifically targeted at infrastructure repair and maintenance, as the Hon Deval Patrick has proposed, is, in my estimation, a fair balance of cost/reward. With a sales tax a percentage of purchases funds the government and that’s a needed thing and all, but one is not deliberately and directly funding better things to purchase, whereas with a gas tax one is more directly funding that which is being used; there is a cost to automobile use and you either pay that cost or refrain from using the automobile.

                I’m wondering if you are operating under the thesis that a progressive tax is one in which no one feels any cost at all (or, in the colloquial, ‘pain’ and that, therefore, a regressive tax is one that inflicts pain, or cost, no matter the benefit. No one is here arguing that: the pain, or cost, is real and should be felt both fairly and with impact and thats progressive.

                • I understand your point but ...

                  … the idea that a gas tax is regressive is because the poorer members of our society tend to be the ones that are most reliant on a car to get to work. Take Boston, for example, the wealthier neighborhoods are the ones with the best access to public transportation; the poorer neighborhoods have much worse access. Thus, folks in Roxbury and Dorchester have a greater need for a car than those on Beacon Hill or in the Back Bay, for example.

                  I fully agree that taxes directly related to the use of a good, such as gas taxes, are equitable in the sense that they make the individual pay for their own externalities — emissions, road wear, etc. But that doesn’t mean that they’re not regressive.

                  If the poor pay a higher percentage of their overall income toward a particular tax than a comparatively wealthy person, than the tax is regressive by definition.

                  • that's an indictment of our public infrastructure...

                    Take Boston, for example, the wealthier neighborhoods are the ones with the best access to public transportation; the poorer neighborhoods have much worse access. Thus, folks in Roxbury and Dorchester have a greater need for a car than those on Beacon Hill or in the Back Bay, for example.

                    … as implemented, and not an indictment of a gas tax per se: in fact, one could argue (and I readily will) that car-centric infrastructure policy has been heavily subsidized by government for far too long and now that bill is coming due… indeed, the core of your argument is that municipalities are defined by auto-centricity and therefore ought to be tax-exempt in the same manner that food and clothing presently are exempt. I disagree, as no doubt you may have noticed and feel the decision (if, indeed, it was a deliberate act) to be lopsided in our transportation subsidies was both wrongheaded in principle and poor in executiion.

                    Tax the gas to fund the bus. Give to the poorer neighborhoods the same public transportation access as the wealthier neighbors.

                    • Maybe we'll have to agree to disagree

                      I’m totally with you that “car-centric infrastructure policy has been heavily subsidized by government for far too long and now that bill is coming due…” but I don’t believe that the solution is to institute a tax policy that falls most heavily on those who can least afford to pay it.

                      One of the problems of the gas tax is that it uses one thing — gallons burned — to substitute for another thing — miles traveled. It’s miles traveled that puts wear and tear on our roads and bridges, not gallons burned. (Granted gallons burned contributes to pollution, asthma rates, global warming, but those are separate from funding public transit, road repair, etc.). Now the poorer among us are, in general, driving older cars that get lousy gas mileage, while the wealthier are driving newer cars that get comparatively better gas mileage. So the poorer driver tends to end up paying more in gas tax per mile driven than the wealthier driver, not because he chooses to but because he can’t afford a car that gets better mileage. This is simply not an equitable way to fund transportation infrastructure, regardless of your feelings vis-a-vis private vehicles vs. public transit.

                      In addition, your claim that I’m advocating “tax-exempt[ion]” for urban gas purchases is totally erroneous. All you have to do is look back at my original comment to see that I believe that gas taxes “should certainly be increased in an effort to incentivize a move away from fossil fuels.” I simply don’t believe that we should fund our transportation infrastructure solely (or even largely) through the gas tax.

                      And it’s all well and fine to say that cities should increase public transportation in poorer areas … but this costs money. The reality is that there’s barely the money in the budget to fund what we have. Where is the money for these new services going to come from? Certainly not a gas tax that falls most heavily on the poor who have been being short-changed service-wise for decades.

                      Lastly, I myself, don’t own a car. But I benefit from both public transportation and our road network in any number of ways. Shouldn’t I have some skin in this game? If we rely solely on the gas tax, I won’t. And that’s just foolish policy.

                    • I think this is wrong

                      It’s miles traveled that puts wear and tear on our roads and bridges, not gallons burned.

                      Actually, it’s vehicle weight that wears out roads. Heavier vehicles cause pavement and bridges to fail sooner than lighter ones do. They also get worse gas mileage. I am not confident that the old “poor people’s cars get worse mileage” notion is still true. It may be, but I’d need to see some evidence before I’d accept it. As far as new cars, it’s not poor people who are buying behemoth SUVs and pickup trucks, and those are the component of passenger vehicles that causes the most road wear.

                    • You're absolutely right

                      I ignored weight to simplify things.

                      Lets compare someone driving a 1992 Mercedes 300E versus a 2012 Mercedes C300 (basically the same model 20 years apart).

                      The ’92 Benz weighs 3,660 pounds and gets 15/19 mpg (according to Edmunds.com and assuming that a 20 year old car is still getting its optimum gas mileage, which is highly unlikely).

                      The ’12 Benz weighs 3,737 pounds and gets 17/24 mpg (again Edmunds.com).

                      So you have the older car being lighter and getting worse mileage. Meaning that if you can afford to buy new, you pay less money to travel the same distance and that distance traveled puts more wear and tear on the road.

                      Looking at a Honda Civic we see that a 4-door, 1.6 liter engine 1992 model weighs in at 2,480 and gets 25/33 mpg while the most comparable 2012 model (with a 1.8 liter engine) weighs in at 2,608 and gets 28/36 mpg.

                      Now this isn’t cherry picking, mind you. These are the first two cars I chose based on the fact that they both hold up well and people are still likely to be driving them 20 years later. In both cases the older car is lighter and gets worse gas mileage. So a gas tax doesn’t work well if we’re actually trying to compensate for wear and tear on roads, which we are.

                      Now, I’m admittedly no expert on gas mileage, so I can’t point you to a definitive study to prove that poor people drive cars that on average get worse gas mileage. But its a fact that the used car market offers worse gas mileage than the new car market. And since the poor tend to buy used cars rather than new cars, I don’t think it’s a stretch to assume that the poor are generally forced to drive cars with worse gas mileage than their middle-class neighbors.

                      As for SUV’s, gas taxes aren’t particularly effective. The 2010 Hummer H3 gets 14/18 mpg and weighs in at 4,695 pounds. It weighs 26% more than the 2012 Benz buts it’s gas mileage is only 21% worse … meaning that the Benz driver is actually subsidizing the Hummer driver! So, once again, if you’re actually looking to account for wear and tear, your gas tax just doesn’t do it. We need something better. The regressive gas tax isn’t it.

                    • The numbers are deceiving

                      The mileage difference between the two older cars and their newer counterparts is miniscule compared to the difference between the Hummer and any of them except the old Benz. If you convert miles per gallon to gallons per mile, it becomes more apparent.
                      H2: 0.0714 gpm
                      ’12 Benz: 0.0588 gpm
                      To see what that means for a 100-mile trip, just move the decimal point.

                      I know the conventional wisdom has been that lower-income people drive low-efficiency cars, but given the relative durability and increasing numbers of small, efficient Asian cars (as compared to Detroit iron), I wonder if that’s still true. I tried to find some comparison of brand longevity, but haven’t found much useful.

              • Can you back that up?

                gas taxes are equally or more regressive than sales taxes

                Specifically, if we (1) raise the gas tax to pay for the Big Dig debt that got piled onto the MBTA and then (2) cut the potion of the sales tax increase that goes to the T, what is the actual impact across income groups?

                Remember that (3) a healthier T means fewer and smaller regressive fare increases over time.

                Analysis can be revealing. Is there any?

                • You have me there

                  I don’t know of any analysis that specifically addresses what you’re talking about. I’d love to see analysis of this sort.

                  That said, I’m generally leery of the sort of shift that your proposing because I think it tends to advantage folks like me — yuppies who can afford to live in neighborhoods with great access to public transportation ad who therefor don’t need cars and won’t be paying the gas tax — and tends to disadvantage the poor who are more reliant on automobiles because they can’t afford to buy or rent in neighborhoods well served by the T and will therefor be subsidizing my T rides.

  7. Not without replacement revenue

    Cutting taxes does not create tax revenue. That has been debunked time and time again.

    The revenue in the sales tax increase is specifically earmarked (including public transportation), and there’s been plenty of good programs that have been cut in the Great Recession that deserves to be restored.

    Until revenue emerges that can replace whatever would be lost from cutting the funds where it goes, and the deep cuts that have shook our system for years, a sales tax cut shouldn’t be entertained.

    RyansTake   @   Tue 20 Nov 11:22 PM
    • "Cutting taxes does not create tax revenue."

      That’s not my argument. My argument is that (1) reducing the sales tax is likely to increase demand for goods and services, which tends to create jobs; and (2) the increase was supposed to be a temporary expedient to get us through a serious fiscal crisis. I, at least, believed what I said about Obama’s economic plan basically having gotten us through the worst of the recession; I therefore do think that the worst of the crisis has passed.

      That said, I’m all for improving the tax system at the same time. By all means, let’s make Amazon start collecting sales tax (it’s absurd that they don’t). Let’s please remove the sales tax exemption for candy and soda, as Governor Patrick has repeatedly proposed. And phasing in a reduction to 5%, rather than doing it all at once, seems perfectly reasonable. Etc. etc.

      I do think it would be nice to disprove the “one-way ratchet” argument of the Howie Carrs of the world, who insist that any “emergency” tax is guaranteed to stay in place forever because the “emergency” never goes away once the money starts rolling into Beacon Hill.

      • Economic impact of taxes

        (1) reducing the sales tax is likely to increase demand for goods and services, which tends to create jobs;

        Can you back up this argument other than quoting Arthur Laffer? What goods and services are not being purchased at a 6.25% tax rate that would be purchased at a 5% tax rate? Keep in mind that services are not taxed. If the argument is more on the lines of the other standard Republican talking point, “taxes take money out of the economy”, then I’d like to offer a counter-example.

        First, taxes don’t “take money out of the economy”. Taxes simply allocate the economy’s money differently. They do this by taking money from some people and spending it on items that the people deem a priority.

        Let’s use an exaggerated example: let’s say that an average household is paying $100 more in sales taxes at the 6.25% rate. Let’s say that without the higher tax, this $100 would have gone to purchase some Apple product. With the tax, the $100 is exclusively going to pay the salaries of teachers.

        That means without the tax, 2.5m households would spend $250m at the Apple store, and this would then go to Apple and a lot would end up in China. I’m sure some would eventually flow back to Massachusetts, but for the most part, the $250m has quickly entered the national economy and then the global economy, with a small share being paid to a local Apple sales associate, and maybe a little bit more going to the owners of the mall (who likely live out of state).

        But let’s say that the $250m is instead spent on 3,000 teachers. Well, right off the bat, that’s $250m that is almost 100% spent on the salaries of Massachusetts residents. Now yes, those people might also buy iPods, but not to the tune of $75k each – they will spend the rest of that $75k on a wide variety of local goods and services. When all is said and done, the money may all ultimately end up to purchase the same number of iPods, but it will have passed through a lot of hands along the way, keeping a lot of people economically busy. We’d also get 3,000 teachers to educate our children for a year.

        Now my example is extreme because that $100 from everyone would not all going to iPods. But a lot of it would be spent in the national and global economy because our local economy is a much smaller proportion of spending nowadays.

        See, we need to think of our local and state economies the way a nation would – if we are net exporters, we will be successful; if we are net importers, we will become poor and unsustainable. This thinking needs to occur at every level. Near where I live, there is a debate over whether to turn a recently closed industrial site into a grocery store. There is even talk of giving help to get the grocery store built. It’s stupid, because a grocery store isn’t going to import dollars into the region, but an industrial site would – so it’s a bad trade.

        In the same way, a pizza shop is not nearly as economically good as a company that makes pizza dough which is then sold in grocery stores. The latter is much better economically because it is an importer of wealth, not a redistributor of wealth.

        In terms of economies, there are people who facilitate the movement of money, and there are people who inhibit the movement of money. A silly example of an inhibitor would be someone who earns billions per year and puts it in a vault like Scrooge McDuck. You want to keep money away from him because he shrinks your economy. That doesn’t really happen – people who earn billions take the money and put it into global capital markets. But they still shrink the local economy because the money is invested globally. In the absence of demand, it gets used for things like driving up the price of commodities, or even to expand factories in China.

        The trick of local taxation is to keep the money in the hands of economic facilitators, and away from economic inhibitors. Taking money from Mitt Romney to pay teachers helps the local economy. Increasing sales tax on the poor and giving it to the banks hurts the local economy.

        I would be in favor of reducing the sales tax in exchange for a higher marginal tax rate on the rich (I know, not possible without a constitutional amendment). I would not be in favor of reducing the sales tax in exchange for lower aid to cities and towns, or in exchange for less money spent on infrastructure. When the budget improves, then it should be the first tax to come down (before the income tax), but we shouldn’t lower it prematurely.

      • I'm with you on everything from the second to last paragraph

        but those are all examples of increasing the sales tax, not cutting it. They also happen to be sensible policy that ads fairness to the system and makes sure Amazon, which already has an edge of local businesses in prices, doesn’t get an automatic ‘sale’ because it’s tax free.

        I’m sure local businesses would actually love that… but I don’t think we should put reducing the sales tax on the table, not until important programs are restored and we have replacement revenue for the things that we need (and maybe even new revenue for things that are good ideas, but we Patrick never got the chance to implement because of the bad economy — like his free community college idea, which would have cost peanuts in the grand scheme of things and given Massachusetts a big educational edge over the rest of the country).

        RyansTake   @   Wed 21 Nov 10:53 PM
  8. Regarding emergency measures...

    …which both Bob and David seem to latch onto, though I don’t recall that being part of the original discussion, if that was intended then the original legislation should have had a sunset provision. Then again, I think the point about whether or not the emergency has passed is debatable.

    • in my recollection,

      there was much talk of emergencies, which prompted the tax hike, but it was centered around the MBTA.

      That emergency hasn’t passed, and given that the sales tax revenue gained by the tax hike hasn’t met the projections, isn’t going to, either.

      The MBTA is still in deep trouble and will likely be the battle royal going into this year.

      We don’t need calls from the left to cut what little additional revenue we have been able to get to the MBTA before we even get into discussions about what to do with the MBTA.

      RyansTake   @   Wed 21 Nov 12:56 AM
  9. Maybe drop to 6%, but I'd prefer no prop 2 1/2 override this year.

    It would be a positive thing to drop it to 6%, but we still have plenty of crisis happening in town budgets across Massachusetts. Schools are still suffering, and property taxes continue to be onerous, especially for the unemployed or underemployed homeowners, who face this bill even though they earn far less than ever before, if anything at all.

  10. I'd be happy to trade the sales tax increase

    …for a revenue source that’s less regressive. But that 1.25 percent increase represents about 4 percent ($800M of $20B) of the taxes the state collects. Got ideas about which 4 percent of the budget to cut if we eliminate it?

    From where I sit, the emergencies caused by the recession are nowhere close to being over.

    • I haven't done anything like math on this

      but I think the idea, as David presents it, is that cutting the sales tax will enable cash-strapped consumers to buy more stuff with the savings. That increase in demand will create jobs, which will result in more people paying 5.3% income tax. That will offset the lost revenue.

      To what extent I have no idea, but to me it seems the increase in demand won’t be that huge. We’re talking about 1.25% of the purchase price of things subject to sales tax. Since food and most clothing isn’t, and people don’t pay sales tax on housing, car payments, and a whole host of things that come out of their take-home pay, the percentage of gross income restored to citizens (and thus the potential increase in demand) will be far smaller than 1.25%.

      And, of course, many jobs created by the increase in demand will not be in Massachusetts, and thus of little help in fixing the state budget hole.

  11. Sadly, we can't afford to

    cut the sales tax. It’s unlikely to stimulate growth. I bought a car this summer. That’s the biggest purchase I’ve made in years. Cutting the sales tax would have saved me $190. Who’s going to run out and buy a new car because they can now save $200?

    I don’t know how the sales tax is apportioned, but at the municipal level, I can tell you that we’re still cutting stuff. We can’t increase our tax revenue more than 2.5% a year, and our municipal infrastructure–roads, culverts, vehicles, computers, etc.–are crumbling. A 1% tax override would raise only about $100,000, which doesn’t go very far. Cut the tax rate and likely cities and towns will not be able to afford the services they provide. Cut taxes and services people need will suffer, and cuts in local services a never progressive.

    From a tax policy perspective, we should have increased the income, not the sales, tax. The sales tax is regressive, and our tax revenue should be more progressive. I support the Campaign for Our Communities as a fairer, more comprehensive, alternative.

    • Absolutely

      From a tax policy perspective, we should have increased the income, not the sales, tax.

      We could at least have two brackets. New York has seven. The highest is almost 9 percent, which doesn’t even count the almost 4% income tax for New York City residents. Also, I don’t know if this has changed, but a couple of years ago they weren’t (at least at the top) marginal. Above the threshold, you paid 8.8% on every dollar of taxable income.

      We don’t have to do anything like that here, but we could certainly have a 6 or 6.5% rate for income above a certain level.

    • I have to agree with Mark.

      Yes, I studied economics in college so I understand that, in theory, decreasing the tax rate should increase demand, but I’m not too sure that we’d really see this happening in reality.

      Let’s say that my wife and I are thinking of splurging on a really nice dinner to celebrate her new job. We’re foodies and we like to drink wine when we’re celebrating (we take public transportation, so we don’t have to worry about starting on a second bottle when it’s a big night), so maybe the bill will run us $170 at an upscale place with aps and desert. With tax that comes to $180.63 and we’ll add another $40 to that for a tip (we both used to be bartenders). All told, we’re out the door $220.63 lighter in the wallet, not something that we do very often, but it’s a special occasion. Now drop the sales tax to 5% and the night costs us $218.50. Not the kind of difference that is going to matter one way or the other.

      Let’s say it’s a new ipad that I’ve been saving for. Is the difference between $425 and $420 really going to be the deciding factor on whether or not I splurge? No.

      And if it’s not bigger ticket splurges that we’re talking about, but routine purchases, say at Target or BJ’s, we’re now talking about savings of way less than a dollar on your average bundle of goods. I believe that most behavioral economic studies show that the average person is simply not all that sensitive to marginal changes that are this small.

  12. Raise other taxes first

    I simply don’t buy the supply-side argument. I see precious little (as in “no”) evidence that reducing taxes does anything but reduce revenue.

    The state needs to increase its overall revenue. Here are some things that, in my view, should come before contemplating ANY tax reductions:

    1. Broaden the sales tax to include internet purchases. The tax-free competition from internet merchants hurts our brick-and-mortar merchants, and we essentially subsidize that harm by exempting internet purchases from taxes. I love the convenience of buying on the web. I’m not going to stop doing that because a sales tax is applied to those purchases.

    2. Raise the gas tax, perhaps in conjunction with a carbon tax.

    3. Increase tolls, especially if we can add high-speed tolls to eliminate the bottlenecks at toll plazas.

    4. Increase gift/estate taxes.

    5. Increase the tax rate on “unearned” income (interest, dividends, capital gains, etc).

    There may be others. I don’t see us having the political capital needed to impose a progressive income tax, and that move will take a long time even if we did. Raising other taxes may well help create that political capital.

    We started down the tax-cutting road with proposition 2 1/2 in 1982, and our governance and quality of life has suffered since then. In my view, whatever benefits those tax cuts have brought have been greatly overshadowed by the devastating consequences they’ve brought about.

    In my view, it is only after we have solved the revenue problem (especially in our transportation systems) that we can even contemplate a reduction in the sales tax.

    • I agree with you but

      I simply don’t buy the supply-side argument. I see precious little (as in “no”) evidence that reducing taxes does anything but reduce revenue.

      It’s not a supply-side argument. The argument’s not that tax cuts for the wealthiest will spur them to invest in things, creating supply of goods and services and thus creating jobs. It’s that strapped consumers having more cash in their pockets will free them to buy more stuff, thus creating jobs. That’s demand-side.

      Obviously demand-side economics works much better than supply-side economics, but I don’t see this particular instance of demand-side being of enough help to justify the lost revenue. I agree with everything else you’ve said, including (unfortunately) the lack of political will for a progressive income tax.

      • Better ways to stimulate demand

        I’m very dubious that one or two cent decrease in the sales tax will have any impact on demand at all.

        For nearly forty years, the NH border towns of MA have argued that they lose business to NH outlets because of the sales tax. I lived in one of those border towns (Dunstable, MA) from 1986 to 1998. I know, from explicit first-hand research, that the outlets in Nashua NH charged EXACTLY five percent more for each item than their MA counterparts. I’m talking about retail outlets that have NH and MA stores, where such comparisons were simple. I think the major effect of reducing the sales tax would be to increase prices. The merchants might like it, but I don’t think consumers would see any great advantage.

        I think that some better ways to stimulate demand in MA are to:

        1. Increase the unemployment compensation rate and/or period
        2. Increase programs that provide free- or low-cost public transportation to low-income workers
        3. Restore the MANY cuts that have been to services for the lowest tiers of our economy.
        4. Increase the availability of free- or low-cost health care to our poorest families.

        • I see that, too

          …outlets in Nashua NH charged EXACTLY five percent more for each item than their MA counterparts.

          It’s still true.

          As far as stimuli, the biggest one would be implementing single-payer health insurance, to include negotiating the best prices for medicines &c. In addition to freeing up citizen money, it would be a huge advantage for MA businesses. I am puzzled that the idea is not being pushed by business.

        • Absolutely

          there are better ways to stimulate demand. I was just saying it’s not a supply-side argument, even though it shares the “cutting taxes to stimulate the economy” with supply-side arguments.

          By the way, there is precedent for your argument that it’s a poor stimulant. Bush had his “stimulus” via tax cuts and Obama watered down his not only by making it smaller overall than it should have been, but also by replacing some proposed spending with tax cuts (effect on the deficit is the same). The House GOP, which gave him 0 votes, wanted that. But it’s well-established, in research on multiplier effects, that tax cuts (even for poorer people) are less stimulative than direct gov’t spending.

  13. once "they" raise a tax .....

    Glad you brought it up for discussion, you always hear that there is never a temporary tax increase. Mass Pike temporary tolls to pay for the road anyone?

    I don’t know how our revenues look going forward and where we were at 2009 and today, but if our revenues are higher and are able to replace whatever gain we got from the sales tax hike I’m in favor in bringing it back to 5%.

    Just last year Patrick wanted to tax candy and soda (and I believe cigarettes as well), this with a higher than expected revenue increase. Granted revenue estimates we low to being with. So I could be wrong but I don’t think we’re going to see it this year.

    But hell, why not have the discussion and raise the awareness on Beacon Hill.

  14. In conjunction with some other tax increases

    The gasoline tax
    the income tax, perhaps with a modest increase in the personal exemption

    Otherwise you are just transferring the burden to fees and other taxes that are at least as regressive (property, mass transit) as the sales tax.

  15. It's both interesting

    and refreshing to have this discussion just after an election rather than before or during one. I would like to see someone look at the data to see how much revenue would be lost, and how much we would expect to gain by reducing the sales tax. Since we are required to have a balanced budget I would prefer to raise revenue in a more progressive manner that with a sales tax.

    I do not agree that the gasoline tax is non-regressive. I understand that it is environmentally popular to raise taxes on gasoline in order to reduce the demand, but for working poor and middle class who do not live near public transportation this would be a hardship. It’s not an option for them not to drive.

    I would go back to look at a tax on sugary drinks or other health endangering products. If a product produces long term costs for all of us in terms of health care, then I have no problem with taxing it into oblivion.

    So here’s the plan. 1. Decide how much revenue would be lost/gained with a sales tax rollback. 2. Replace that revenue with a small gas tax hike to pay for transportation, a tax on sugary foods that give people diabetes at an early age, and a progressive increasing of the income tax targeting higher incomes. The idea is to reduce the tax burden on middle and lower class folks and to tax those things that are harmful and costly to all of us in the long term. The result might be a healthier economy and a healthier population.

    • I agree the gas tax is a hardship for a select group of people

      and a progressive income tax is a great idea. I am tired of the behavior control taxes altogether. I worry which costly behavior will be targeted next. We about a football tax. Look at how much those concussions are costing us. What about water skiing or snowmobile riding. All of those injuries we have to collectively pay for. What about those who are injured terribly and have to live with constant care for decades. Just an example of what lies ahead if we don’t stop promoting behavior control taxes. There really is not a lot of support for them.

  16. Vintage Democratic "strategizing"

    Pre-emptively giving the other side something they want without saying what we’d demand back. This is the Tom Daschle School of Politics.

    I’m for reducing the sales tax in return for the invest in our Communities Act. I’m not for unilaterally lowering taxes. This is a juicy bit for anti-government types…what will they give in return.

    Still better than the annual BMG whine/post from the editors about how supermarkers should be open so workers can be exploited, er, so they can buy some cranberry sauce they forgot to get the week before.

    sabutai   @   Wed 21 Nov 2:02 PM
    • All due respect,

      this has nothing to do with what the “other side” (which has exactly zero sway in MA at the moment) wants. It has to do with whether we can take our elected officials seriously when they assure us that a tax increase is needed to deal with a serious crisis.

      As for supermarkets, I’m still right about that. But I’m saving my post for Christmas. :D

      • Oy

        I’ll save my reply for Christmas then.

        As for taking elected officials seriously, you forget there are different classes of them. And one class is those that will take any tax cut, any time, for any reason, regardless of impact on the well-being of Massachusetts residents. This doesn’t just include Republicans — you know better than this, David — but many Democrats who would be Republicans in other states. After four long years, Obama finally figured out you can accept arguments in good faith from those working in bad faith.

        The conversation must begin with “are revenues adequate” (no) not “what excuse can we find to roll back a tax?”

        sabutai   @   Thu 22 Nov 10:59 AM
  17. sales taxes?

    I can’t believe you guys can go on and on about this regressive tax when the state can’t organize itself to have a progressive income tax schedule. Talk about regressive – a flat income tax. And talk about inefficient – the Massachusetts Income Tax forms. Plenty of space to find money in both the administrative and fiscal basis there.

    Eliminate the sales tax and move on to a reasonable graduated income tax.

    • "a reasonable graduated income tax."

      I’m all for that – have been saying so for years. But it requires a state constitutional amendment – which has been tried before and has failed at the ballot box. So, it’s a problem.

    • The income tax does not have to be flat

      Raise the personal deduction, raise the rate to 5.95% and it is more progressive.
      Also, incomes from things like stocks & dividends should be taxed at a higher rate. That would be more progressive.

    • See my post.

      It’s on the front page.

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