House to debate sales tax
House lawmakers will begin debate today over how to close a nearly $4 billion budget deficit projected for next year, looking for alternatives to severe cuts or depleting the state's reserves.
Reluctant to nickel and dime taxpayers with new levies on alcohol, candy, soda and gas, the sales tax has emerged as the more palatable option for an increase. Proposals include hiking the tax to 6 percent or 7 percent, with some calling for a lifting of exemptions on gasoline and services like haircuts.
Raising the sales tax to 6 percent will generate an estimated $724 million next year, according to a report from the Massachusetts Taxpayers Association. The study estimated the average consumer would pay an additional $120 a year.
A new report from the conservative Beacon Hill Institute, however, suggests a 20 percent increase in the sales tax could jeopardize up to $41 million in investment in the economy and cost the private sector more than 10,000 jobs.
The overall windfall, according to the Beacon Hill Institute, would be close to $520 million after accounting for the decrease in spending and disposable income among consumers.
"It is on votes like this that small businesses and consumers determine just who their friends are in the Legislature," said Jon Hurst, president of the Retailers Association of Massachusetts. "Truly this is the biggest threat to Main Street Massachusetts that we have seen in 20 years." The retail industry in Massachusetts employs as much as 18 percent of the state's workforce.
Business leaders argue that raising the sales tax will encourage more consumers to shop online or drive across the border to sales-tax-free New Hampshire.
"Massachusetts legislators cannot force a sales tax upon their constituents. Rather, they can only incent them to avoid the tax altogether by a quick drive to New Hampshire, or by a few clicks of their computer mouse," Hurst said.
Currently, Massachusetts stacks up favorably against other New England states: With the exception of New Hampshire, there is no sales tax charged on purchases.
Rhode Island has a 7 percent sales tax, Vermont taxes at 6 percent and Maine taxes at 5 percent. New York state levies a 4 percent general sales tax, but individual communities and counties add local charges ranging from 3 percent to 4.75 percent.
Ironically, as business leaders label the sales tax hike and economic stimulus package for New Hampshire, many border lawmakers have come around to the sales tax as a viable option instead of a gas tax or income tax because they believe their constituents already shop across the border in New Hampshire and therefore won't be impacted as much by the increase.
Associated Industries of Massachusetts began a letter-writing campaign last week encouraging its members to lobby individual lawmakers against the slate of proposed tax increase that will be on the table starting today, including the sales tax and increasing the corporate excise tax to 10.5 percent.
According to AIM, business confidence hit an all-time low of 33.3 percent in February and 46 percent of Massachusetts employers had already conducted a layoff or were planning to do so.
"The budget challenge we face is a multi-year one, and will certainly be prolonged further if we resort to short-term or easy fixes," said Richard Lord, president and CEO of AIM. "Several of these amendments represent significant changes to our tax policy and should not be done through the budgetary process simply as a way to raise revenue without any regard for the longer-term implications for our economy." Lord said the best way to grow the economy and support the social programs that state leaders view as essential is to create new jobs.
"In the interim, state government, like every business and household in this state, must live within its means by cutting where it can, by doing things differently, by making the hard choices confronting it," reads the letter being sent around to lawmakers.
House Republicans have planned a press conference for this morning to blast the idea of raising the sales tax, and will be joined by representatives from the business community, including the Retailers Association of Massachusetts.
"There will come a tipping point where business owners themselves will do the math and decide it makes sense to follow their customers," said Bill Vernon, state director for the National Federation of Independent Business.
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