So now is the time of year for every activist to keep their eye on the Administration's budget making process to make sure the appropriate staff in the Secretary's office understands the importance of the line item that funds your program and keeps your community healthy.
At the same time, keep your eyes on the real solution — developing more adeqate and balanced revenue steams. For starters, take a look at the Tax Expenditure Budget.
One Mass will be hitting the road with a series of public and private sessions “Plain Talk about Taxes” in the very near future.
(Yes, it's still important for all of us to pay attention to federal and state electoral politics particulary at this time when our elected officals will be debating policies aimed at stimulating the economy and bringing universal health care to every resident of the commonwealth and the country.)
…in the old days when DCF ordered a parent to do urine screens, DCF paid for those screens. Not any more.
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p>….in the old days when a school system filed a CHINS petition against a family because the child did not go to school, a guardian could be appointed to ensure the child was getting educated, and the CHINS petition was not a way to avoid special education costs. Not any more.
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p>….and our state is already 47th in its support for public higher education. The skilled work force is supposed to come from exactly where? 80% of the graduates of our state higher educational facilities stay here.
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p>We have over 70,000 unfilled skilled jobs – some employers have already moved to where the workers are. Are we committed to upward mobility and skilled employment for our citizens? The way it looks to me is: Not any more.
Now there’s a cut to some bone from the ONE Mass News Roundup
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p>Lawrence firefighters stop some calls after cuts so please don’t have a unexplained belly ache or high fever in Lawrence.
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unless you’re trapped in a car.
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Thanks, Judy. Keep us posted about the “Plain Talk” sessions.
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p>–Leo
Judy, I think your reference to tax expenditures is crucially important, and is not well enough understood by the public.
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p>One complication I want to mention is that many tax expenditures exist because the Massachusetts income tax defines some terms, like gross income, are defined by reference to the Internal Revenue Code. So eliminating many Massachusetts tax expenditures means decoupling the Massachusetts income tax from the Federal income tax, thus increasing the complexity of the tax system. That’s not to say we shouldn’t do it–we decoupled the estate tax system several years ago–but for the average taxpayer, decoupling on such basic items as whether premiums on employer-provided insurance are included in income would create some headaches come tax season.
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p>Also, in many cases, tax expenditures are highly efficient ways to achieve public policy goals. For example, if we want to encourage use of mass transit, the Charlie Card fringe benefit is a pretty efficient way to do it, in my view. Tax expenditures, defined broadly, can also serve redistributive policy goals (e.g., the standard exemption or the standard deduction).
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p>TedF
TedF,
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p>You are correct on the points you make, but these are gnats on an elephant.
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p>The tax expenditure budget, for the most part, represents huge revenue give-aways to corporations. Dozens of studies by economists of all political stripes show that these do no good in terms of their supposed objectives (usually keeping or creating jobs), but instead are simply shifting taxes away from our corporate citizens. The result is not necessarily an increase in personal taxation, but often simply revenue foregone. Hence, our huge deficit.
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p>Our biggest challenge, it seems to me, is to fight the Reagonomics myth that lowering taxes is good for business, when exactly the opposite is true. Yet, the majority of Americans still believe this.
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p>If we want to create jobs in this state, we need to raise taxes; especially corporate taxes.
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p>Really? I thought the big driver of the deficit was the overreliance on expected revenues on taxation of capital gains. At least that’s what this discussion from the Governor’s office suggests to me. Of course, if we had higher revenues from other sources, this wouldn’t be an issue, but my point is that I don’t see that it is sensible to call out tax expenditures as the source of our budgetary problems.
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p>TedF
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p>You’re right tax expenditures are efficient ways to achieve policy goals. So, let’s try and figure out the policy goals for some of the sales tax exemptionslike:
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p>3.408 Exemption for Textbooks
Textbooks and other books required for instruction in educational institutions are exempt from sales tax.
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p>Origin: M.G.L. c. 64H, S. 6(m)
Estimate: $17.0
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p>3.409 Exemption for Books Used for Religious Worship
Bibles, prayer books and other books used for religious worship are exempt from sales tax.
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p>Origin: M.G.L. c. 64H, S. 6(m)
Estimate: N.A.
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p>3.410 Exemption for Containers
Most containers are exempt from sales tax. These include sales of empty returnable and non-returnable containers to be filled and resold, containers the contents of which are exempt from the sales tax, and returnable containers when sold with the contents or resold for refilling.
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p>Origin: M.G.L. c. 64H, S. 6(q)
Estimate: $121.2
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p>3.501 Nontaxation of Transfers of Real Property
Real estate is exempt from sales tax but is subject to a deeds excise at a rate of 0.456% of the taxable price of the property (0.342% in Barnstable County). The estimate represents revenues that would be collected under the sales tax if sales of real property were taxed at 5%.
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p>Origin: General exclusion of real property transactions
Estimate: $2,706.4
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p>3.502 Nontaxation of Rentals of Real Property
Rental charges for real property, whether for residential or business purposes, are exempt from sales tax.
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p>Origin: General exclusion of real property transactions
Estimate: $1,028.2
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p>3.503 Nontaxation of Certain Services
Certain services are not subject to sales tax. This estimate includes a range of services to individuals and businesses which are excluded from taxation by their omission from the statutory definition of services.
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p>Origin: M.G.L. c. 64H S. 1
Estimate: $6,998.7
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p>3.504 Nontaxation of Internet Access and Related Services
Internet access services, electronic mail services, electronic bulletin board services, web hosting services or similar on-line computer services are not subject to the sales and use tax.
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p>Origin: M.G.L. c. 64H S. 1
Estimate: $97.9
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p>Policy implications anyone?
When you tax something, you get less of it. In this case, there would be fewer real state transactions, and a quick property value haircut of 6.25%. You’ve done the math for me: $2,706,400,000 in reduced real estate value.
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p>I can’t begin to imagine the number of unintended consequences of a sales tax on real estate transactions.
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p>One that jumps to mind would be triggering defaults on commercial loans that include loan-to-value provisions … that 6.25% ding on value might just tip a bunch of commercial paper into technical default when the 6.25 is taken into account by appraisers.
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p>It could also have a similar effect on residential defaults, triggering mortgage abandonments when sellers realize they do not have the equity to payoff the mortgage AND the new tax liability … so they walk away and default rather than trying to do the right thing.
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p>All but 14 states have some sort of transfer fee, and generally they’re tiny, like deed stamps.
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p>But no other state imposes a sales tax.
Yikes. Way to increase rents statewide by 6.25%. Or, other side of the coin, throw some rental properties into default. Sometimes, that’s all the cash flow there is. If you tax it away, landlords may not be able to make their payments, and more property is defaulted.
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p>In any case, value destroyed would be 8 or 10 times the loss of net income, so you would evaporate $10 billion of wealth in the state.
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p>Is this what you want?
you should wait and measure the effects of the increase in our sales tax hike. I believe the increase will be far less that you think because:
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p>(1) hiking the tax will invariably result in fewer sales dollars generated by MA residents. It’s a law of economics.
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p>(2) the sales tax differential between MA and CT (6%), VT (6%) and RI (7%) has been eliminated or reduced. Why drive from CT to shop at the Home Depot and Target in Sturbridge now?
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p>(3) you’ve increased the incentive for MA to shop in NH, especially for booze which was exempt before now. I betcha NH has a budget surplus this year.
Judging from your resume on PPI, Judy, may I ask if you’ve ever taken an advanced microeconomics course?
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p>We cannot forever tax our way out of what I think is a long term, structural revenue decline facing MA.
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p>The past year has been a game changer, and once-a-century paradigm shift, for state government tax policy, and instead of continually advocating for increased taxes, perhaps it’s time to think about the entire structure of our state government.
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p>I do not think revenue will rebound. Not now. Not after the financial melt-down. Not with very significant federal tax increases on the horizon. Not with our state’s demographics, not with our declining population and parallel state GDP flat-lining. (Why haven’t I invested in real estate in NH? That’s where the growth will be.)
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p>You cannot continue to advocate increasing taxes to replace declining state revenues unless you prefer risking a downward deficit-tax-deficit-tax spiral, the results of which are now unfolding disastrously in CA, NJ, and NY. These states are effectively bankrupt.
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p>I think we’re in the next tier, awaiting a similar fate.
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p>Nope, but I think I’ve learned enough to agree with part of your statement.
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p>
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p>Yes it is a game changing year, and that makes for an opportunity to think about the entire structure of state government — what kind of government do we want and how do we pay for it.
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p>I appreciate your analysis of the policy implications of some of the tax exemptions I pasted above.
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p>What do you know about the containers exemption?
I entirely agree that sales via the internet ought to be taxed. I thought I had read at one point that federal law made this impossible, but maybe someone knows the fact of the matter. And I’ll point out that this one point is the big kahuna on the list you’ve provided.
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p>TedF
held that a state cannot impose a sales tax collection requirement on an entity unless that entity has a physical presence in the state. Many physical retailers that also sell online have separately incorporated their online selling operations. States have had mixed success challenging this tax planning. (See the Borders and Barnes & Nobles cases from CA).
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p>There has been a movement since 1992 to streamline sales tax laws so Congress would pass a law allowing states to impose sales tax collection requirement on entities without physical presence in the state. It’s actually been gaining some momentum recently. It’s the Streamlined Sales and Use Tax Agreement. I think MA is currently studying whether to amend it’s sales tax laws to comply with the agreement.
To get through the upcoming period (until the economy turns) of particularly low state revenues combined with particularly high social needs how about a second stimulus package?
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p>This would have the added benefit of serving to speed up the recovery as well as cope with it.