Governor Patrick’s dramatic tax proposal: cut sales tax to 4.5%, hike income tax to 6.25%

Bumped for the Globe's helpful graphic outlining how the Governor's tax proposal will, on average, affect tax bills for various income levels.
- promoted by david

In tonight’s State of the Commonwealth address, Governor Patrick is making a very bold proposal:

  • cut the sales tax from 6.25% back not just to 5%, as I advocated two months ago, but to 4.5%, and “dedicate all the proceeds to a public works fund … sales tax proceeds would be off limits for any other purpose.”
  • increase the income tax from 5.3% to 6.25% – and, “to make that increase fair to all according to their ability to pay,”
  • double the personal exemptions, and eliminate some itemized deductions.

As Patrick says in his address, “there is no good time to raise taxes.”  But Patrick is right: we are in desperate need of transportation improvements, and persistent disparities in education are simply not acceptable.

Especially given the artificial constraints that wrong-headed court decisions have placed us under in Massachusetts, this is a pretty good stab at a truly progressive tax reform.  So, well done, Governor.  We look forward to the details, and to a thoughtful and respectful debate.

Recommended by somervilletom, pablo.



Discuss

36 Comments . Leave a comment below.
  1. Doin' the math

    Fire filing jointly, the doubled personal exemption makes this is a tax cut for couples making less than $64k/yr.

    For joint filers making $75k, it’s a $112 tax hike.

    That’s not counting the effects of the sales-tax cut.

    For single filers, it’s a tax cut if you make less than $32k/yr.

    For a single filer making $50k/yr, it’s a $181 tax hike, again not counting the sales tax cut.

    And it fixes schools and bridges!

  2. Much more to my liking...

    …than the gas tax or VMT which seem to be so popular here, and yes, he did include road improvements like the two major 128 interchanges as well, also good in my book.

    • Meh

      I’m glad he put forward his tax bill. I hope that lege now acts on it. I like the increase in the income tax. I hope he’ll look carefully at the arguments David has present here for why a progressive rate IS allowed under the state constitution.

      I think that dedicating the sales tax to transportation (and other stuff) is a mistake, in particular because the Globe report suggests that this proposal makes it even harder to get transportation funding from income tax revenue.

      I note that no mention is made of shifting the improperly-placed Big Dig debt back to the general fund. This is a crushing mistake, and is responsible for the bulk of the MBTA funding crisis.

      The proposed interchange reconstruction at I93 and Rt 128 in Woburn exemplifies the kind of highway spending that should NOT happen. The interchange gets blocked because I93 south is blocked every day. Expanding the interchange will only create MORE traffic in the area, while any expansion will be huge and expensive (the estimates I’ve seen range from $150-250M). The area requires blasting and is surrounded by residential neighborhoods and commercial properties.

      In my view, a nine figure transportation investment in regional commuter rail will be far more effective at solving the long-standing traffic problems at this interchange. Those traffic problems exist ONLY at rush-hour. The proposals amount to spending HUNDREDS OF MILLIONS of dollars to build bridges and lay asphalt so that those bridges and asphalt remain an empty and desolate wasteland most of the day.

      Governor Patrick’s proposal is a good and much-needed step forward. We must still reset our transportation priorities.

  3. I don't know if its good policy or not

    I haven’t had time to think it through.

    I know it will take money out of my family’s pocket. Frankly, we don’t buy much covered by sales tax. If one makes that pie chart of where after-tax income goes, *relative to the average Mass hole*, we spend more on housing (no sales tax), more on savings/investments (no sales tax), more on groceries (no sales tax), more on child care and child care stuff like diapers (no sales tax). We spend far less on consumer goods (sales tax) and restaurants (some kind of tax).

    So, this policy makes my wallet lighter. For the record, that doesn’t mean I’m opposed to it — in exchange for making my wallet lighter (and other folks’ wallets heavier), is my society better off? Are we getting good stuff for the money?

    Still, I’d like to see it in conjunction with an increase of the gas tax, which is amongst the lowest 25% of states in the nation, is lower than 5 of our six neighbors (including Maine), and is insufficient to pay for our roads.

    • +1 on the gas tax

      We should still raise the gas tax.

      If we aren’t going to do a VMT, then I’d like to see high-speed transponder use on the MA Pike (I’ve lost track of whether or not we’ve actually COMMITTED to removing the toll booths), and I’d like to see those high-speed tolls expanded to include I93 north and south of Boston, and on EVERY major artery joining MA and NH. Given our influence in Washington, I have to believe that some way of allowing those interstate tolls can be accomplished.

      I think we’ve got to provide the ability to provide congestion pricing on our major highways, and dedicate the resulting revenue to expanding commuter rail routes and service frequency to eliminate that congestion.

      • Governor Patrick should be praises

        I was one of his most ardent supporters in 2006, was a critic in 2010 (but still voted for him) and have now come to see what a great executive leader and manager he was. The oratory sold me in 06 on a big, bold,
        progressive vision for our state. For a variety of reasons this vision had to be scaled back. But he has weathered the storm and recession and in passing this balanced tax proposal demonstrates how well our state is managed. More businesses will surely come and quality of life (transit and education inequity aside) is high. I cannot stress how much I can’t wait to move back here from Illinois-a backward state envious of Massachusetts’ problems let alone its solutions. Governor Patricks record of nitty nuts and bolts governing is unparalleled and I am terrified of who his successor might be.

        • Hasn't passed yet ...

          I share your approval of this tax proposal. Not to nit-pick, but it hasn’t passed yet. I’d keep your Chicago lease until it does … :)

      • Agree 100% on the gas tax

        The Mass. gas tax has actually declined 40% compared with the growth in transportation construction costs, according to the Institute on Taxation and Economic Policy. It’s been what, 20 years since that tax was touched? Why?

        An artificially low gas tax subsidizes exurban sprawl. It asks people who pay higher housing costs in order to live closer to work (or public transportation) to help underwrite those who opt for larger more affordable homes in the exurbs and longer commutes.

        If we’re asking the general public to subsidize something, it ought to be something that is an overall social benefit. I don’t think this qualifies.

        At some point, people who are using our roadways more need to shoulder a more reasonable share of their cost.

  4. That chart does not show the percentage of income

    issue we have with taxation. I am perfectly willing to pay a little more in taxes as long as I am not paying a greater percentage of income as those who earn more. So the solution to that is not necessarily to reduce the amount of tax increase expected from the middle income tax bracket, but to increase further the taxes on the higher brackets so we achieve a level playing field. A chart like this is a better way to determine tax fairness. (Weird how the chart is now missing form this BMG post from a while back) Perhaps lowering the sales tax corrects the imbalance. Not fully convinced of that.

    • Good call

      A fair point, a fair question to be asked.

      I’d just chime in that there are a few things for which we should *raise* the sales tax, from 0% to the statewide rate.
      * periodicals
      * comic books
      * admissions tickets (sporting events, concerts, etc). Maybe make it for tickets > $10 or for events >500 people or whatever, to exempt small events or low-price events or something
      * children’s novelty costumes
      * adult costumes too
      * gum and candy
      * commercial gun safes and trigger locks [yes, they're a good idea. So are lots of things that are taxed]
      * motor vehicle gasoline

      It won’t raise a ton of money, but it will make things a bit more fair. Some things I could imagine making tax-free:
      * OTC medication and other health care items [bandages, birth control, etc]
      * MA state and Massachusetts municipal flags [US flag is tax-free, we should treat the state flag the same either way]

      If we’re going to change the sales tax rate, we might as well take that opportunity to make a few other changes to it too.

      • I can agree with some of those - not a sales tax on gas

        because transportation is a basic need, and a very expensive one. Taxing magazines and costumes makes sense. I’m OK with removing the exemption for candy too. Not because I want to control what people eat, but because candy is not a basic need. However, those tax increases will further exacerbate the percentage of income unfairness issue we currently face with taxes.

        • Further exacerbate?

          With the exception of gasoline, the sales tax proposals I list are really small in dollars per person — exacerbating income unfairness seems like really small potatoes. Besides, if it comes in with a *decrease* in the sales tax to 4.5% (or even 5%), then it is a net reduction in the income unfairness situation.

          As for gasoline, no, I’m not willing to call it a basic need. A huge percent of citizens of Massachusetts don’t buy it at all, or buy extremely small amounts of it. Furthermore, there are steps, both immediate and long term, that folks who use gasoline can take to reduce their consumption. The same can’t be said in quite the same way for health care products or groceries.

          P.S. I wonder if anybody’s mapped gasoline consumption with income in Massachusetts. Those with lower income in the exurbs and rural areas almost certainly consume more gasoline per $1000 income than their wealthier neighbors. However, in urban areas, the poor often purchase very little gasoline. So, state-wide, surely the middle class pays more in gasoline taxes per $1000 income than the very rich, but its not clear to me that the poor pay more in gasoline taxes per $1000 than the middle class… which means that the gasoline tax may or may not be regressive, or may only be regressive in some parts of the income scale.

          • Everything happens at the margin

            While a lower sales tax is applauded, I don’t think it can compensate for increases in the gas and income taxes (combined,) even at lower income levels. Guessing here. There’s a ton of driving done conducting business, and a gas tax will suck disposable income out of the average Joe’s pocket.

            Don’t forget that revenue projections for upper-end earners will likely generate less income than excepted because those who can will alter their compensation structure…more non-taxable perks, more business expenses, deferrals, etc.

            Bottom line, everything happens at the margin. More taxes = less disposable income, higher prices, less economic activity, and fewer new jobs.

            And for what? Deferred road and bridge repair, tiny-volume train lines to Springfield, Albany, and New Bedford/Fall River, and some highway improvements. The only reasonable new project is the Green Line extension. But net net, are these projects sufficiently accretive to justified these tax increases?

            Not by a long shot.

            • "Guessing here."

              Guessing wrong, at least when combined with doubling the personal exemptions, as the Gov has proposed. See the graphic in my promotion comment.

              • The Globe's graphic doesn't tell the whole story

                (1) It’s doesn’t contain the gas tax. This affects all income levels equally;
                (2) It’s static and doesn’t anticipate the changes in behavior that will occur to shelter, shift and defer earnings from the higher income tax;
                (3) Some folks will simply say “f’ it, I’m moving,” or retire early;
                (4) Weren’t toll increases mentioned?
                (5) Increasing an income tax makes it more expensive to employ people because people think “net income.” Rents haven’t gone down but take home pay has. Employers must offer more to stay competitive. This kills jobs.

                Of course, when revenues fall shorter than anticipated, there will be an additional cry to raise them some more.

                And for what? So 50 people a day can ride a train from Springfield to Boston.

                • You're making it up.

                  1. Nothing on the gas tax was announced yesterday when the graphic was published. Today’s report is that the gas tax will be indexed to inflation, not increased all at once. So, yes there’s an impact, but no, nothing especially dramatic.
                  2. If you’d like to quantify those and put them in a graphic, be my guest. Of course, rich people who don’t like paying taxes will look for new, creative ways of not doing their fair share. But there’s nothing new about that.
                  3. I doubt that.
                  4. Tolls: 5% every 2 years, according to today’s report (this was not mentioned yesterday). That’s basically keeping pace with inflation.
                  5. This is a retread of perhaps the most tired argument against raising tax increases on anyone, ever. There is to my knowledge very little actual data to substantiate it. It’s John Boehner’s “don’t tax the job creators” argument, and it’s bogus.

                  So, thanks for playing.

                • Gas tax doesn't affect all income levels equally

                  either in absolute dollars or in percent of income. It’s way, way more complicated than that.

                  I do tend to think that the transportation plan overplays regional transit and underplays local transit. The local subway and bus lines throughout the Commonwealth could really benefit from some serious capital injection, but instead (in my view, too much) is being spent on commuter rail-type projects.

  5. Aside from the tax issue

    I am very excited about commuter rail to Springfield, and hope there is a stop in Palmer. YAYYYYYY!!!!!!!! Wooooooooohooooooooo! I hope it happens in my lifetime! I’ll ride the first trip to Boston and spend the day there. No gas, no carbon, no parking, no traffic!!!!!! I can’t wait!!!!

  6. Whacking the construction industry

    For Joe Six Pack, driving the pickup he needs to do his job, a gas tax would SCREW him. 30,000 miles annually, at 20 MPG, is an additional $750 at the pump. And irrespective of income which hurts the working poor the most.

    Don’t forget all those trucks and business vehicles which service furnaces, delivery flowers, haul dirt, and plow snow. All more expensive, too.

    It’s not just about commuting to Boston.

    • Don't forget, they can choose higher MPG vehicles too

      First of all, lots of pickup trucks have nothing to do with the Joe Six Pack driver and his job. It’s the vehicle chosen, but it isn’t used for work.

      But more importantly, there’s a wide range of fuel efficiency for pickups, box trucks, and other work vehicles. Look at the MPG of work vehicles in places where gasoline is $8+ a gallon, and look at the MPG here. Wide difference. You charge more for gas, and folks will figure out a way to consume less gas while still getting the job done. That’s a *good thing*.

      In the mean time, without the gas tax, you’re making people who don’t consume much gas pay for those who do. Cross subsidy of a terrible kind, especially in a state where lots of poor people buy little or no gasoline at all.

      P.S. That $750 of yours — that’s for a vehicle driving more than twice as much as most vehicles are driven per year. 120 miles a day, 250 days a year. Not many trucks drive that much — loading, unloading, congestion, and traffic lights make sure of that. On top of that, you used an additional fifty cents of gas tax. I haven’t seen anybody propose that amount of increase. Total strawman.

      • Piling on

        Joe is more likely to get 15 MPG than 20, and he’ll use about 2,000 gallons a year driving 30,000 miles. At a pump price of $3.75, and with a sales tax of 4.5% applied, that’s about $337.50 per year.

        Joe probably bills about 1,000 hours per year — that’s typical for independent hourly workers/contractors/consultants. He can raise his hourly rate by fifty cents and end up ahead a little. Yes, his customers pay a little more. This is all how the free market works.

        This hardly a “whack”. The contractor I use (who lives on the south shore) has to waste THREE HOURS EVERY WORK DAY in unbillable time stuck in bumper-to-bumper traffic. Those “trucks and business vehicles which service furnaces, delivery flowers, haul dirt, and plow snow” comprise significant part of the daily parking lot on our major highways.

        The sum total of those hours of wasted time every day is a whack.

        • More likely

          Joe makes up this annual $330 cost in a couple of days, working on the roads and bridges the tax plan would fund.

          Or on other work for clients who are earning more because the economy is growing.

          What do you think Joe prefers, cheap gasoline or a job? (And the price of gas is going up anyway).

        • Is your math correct?

          If the gas tax is going from 21 to 51 cents a gallon, doesn’t the contractor’s gas tax bill INCREASE by $600?

      • Yes, easy to say "choose" a higher milage vehicle

        In the long run, that works, I agree. But it’s hurtful right now. And it’s a major capital expenditure.

        However, my point was David’s graphic didn’t include any of the effects of the gas tax. Just the sales tax and the income tax.

        To circle back to your point about new and smaller vehicles, talk to construction guys (as I do) and they ALWAYS tell you they need the size and capacity of the larger vehicle, including towing capacity and bed size. Sheetrock and plywood are still 4×8. Snicker if you want, that’s still a major consideration, at least in their minds.

        So they end up with the truck they need for, say, 20% of their activities yet use it for most of their driving.

        The capacity issue was one reason pick ups were exempted from fleet mileage requirements for many years.

        • Do you ask them ...

          Do you ask them how much time they spend stuck in traffic every day?

          The very fact that they use a monster vehicle like this for “most of their driving” when 80% of that use is unnecessary is precisely why affordable alternatives are desperately needed and why the current approach is too cheap.

          Our highways, land, air, and water are clogged with effluent of the huge portion of automobile and truck trips that are unnecessary.

          • None of the proposed "transportation" spending will help these guys

            Again, not everyone is taking the SE Xway into Boston. Jobs are scattered all over the place. There are few, if any, alternatives to get to the job.

            I don’t disagree that a monster vehicle for 80% of their driving is inefficient, just that their need the truck’s capability 20% trumps the inefficiency. It’s like commercial wind power…you still need 100% conventional back up for those windless days.

            And who are you to decide which trips are unnecessary?

            • Unrelated

              One certainly does not need 100% “conventional” back up for those windless days. At least, that’s the opinion of ISO-NE, NYISO, PJM, MISO, SPP, ERCOT, and CAISO. Those folks operate the grid for, roughly speaking, New England, New York, the triangle formed by DC-Chicago-NYC, the midwest from MI and IN to the Dakotas, NE south to north Texas, rest-of-Texas, and most-of-California. The rest of the country’s operators don’t disagree, but they don’t have formal organizations to make public statements on the matter.

              So yeah, unrelated, but its what I do for a living so I can’t let it go — wind generators do not require 100% dispatchable back-up.

            • From your own comment

              You wrote: “So they end up with the truck they need for, say, 20% of their activities yet use it for most of their driving. ”

              If they only need the capabilities of their truck for 20% of their activities, then the use of that truck for the remaining 80% is unnecessary.

              It isn’t just the SE Xway that’s clogged. As you say, “Jobs are scattered all over the place” and MOST of the those places require sitting in stalled traffic if you need to be onsite at any reasonable hour and again when you want to return home. It isn’t just the SE Xway, it’s Rt 3 south of Braintree, Rt 128, I93 between Boston and Andover, Rt 3 between Burlington and the state line, large portions of Route 2, large portions of Route 9, and don’t even talk about the area between East Boston and, say, Salem.

              If we had a functioning public transportation system, our highways would be much less crowded so that those necessary trips wouldn’t take so long. You are focused on one exception, and you steadfastly ignore the remaining majority. Convenient and affordable public transportation systems take significant numbers of commuters off the road. That reduces or eliminates the congestion for the remainder.

              So long as we’re talking about what is or isn’t necessary, what portion of those pickups (with one driver) in the traffic jam of your choice do YOU think is really needed for the driver’s livelihood?

        • Amazing how

          in places with higher gasoline prices, the same “Joe Six Packs” drive smaller vehicles, or more fuel efficient vehicles of the same size.

          • More efficient for sure

            $4.00 a gallon helps spur the demand. And the truck industry has responded to this. Compare fuel economy to an F150 ten years ago to today…something like 30% improvement without much HP reduction.

            It’d be interesting to see the smaller vs. full size sales trend.

    • Politically incorrect?

      Might I suggest that referring to those gentlemen whose work involves extensive use of a truck as “Joe Six Pack” could be construed as liberal elitism — were it to come from a liberal?

  7. It's amazing how selective some people's hearing is.

    In the teacher’s lunchroom today I heard a lot of griping about raising income tax rates, but when I pointed out the decrease in sales taxes and increases in personal exemptions that was kind of pooh-poohed. There was general displeasure expressed at both the Governor and the President for raising taxes and I had neither the time, desire, nor facts at my fingertips to argue. What struck me though was the degree of Republican vibe I was feeling from a room full of unionized public school teachers.

    • An interesting question

      Why do some people prefer to believe things that aren’t so? I mean, actively get pleasure from, say, death panels, Taxachusetts, etc.?

      What’s the fun of it?

    • Why the Republican vibe against raising taxes?

      Let’s not forget that in some cases, it’s a function of the fact that people are either having trouble making ends meet or are nervous about losing their jobs, or both. When those people hear the words “tax increase,” they think, “it’s probably going to be more money out of my paycheck,” no matter what the reality is.

      Unlike President Obama’s approach, it seems Governor Patrick’s tax plan will hit the middle class. That said, I’m not saying I’m opposed to it. But maybe some more thought needs to be put into first eliminating some of the state’s business tax breaks that are costing the state a lot of money without resulting in clear benefits.

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