In 2009, amid recession, Massachusetts raised its sales tax rate. Could that fly now?
NORTH ADAMS — During the Great Recession, Massachusetts faced a challenge much like the one it faces now: When struggling communities needed help more than ever, a bruised economy meant the government had less money to support them.
In 2009, the state responded by increasing the sales tax from 5 percent to 6.25 percent, after lengthy debate and compromise. Benjamin Downing, at the time a Pittsfield Democrat representing Berkshire, Hampshire and Franklin counties in the state Senate, said the cuts that were imminent made it necessary to raise revenue somehow.
"I remember listening to Gov. [Deval] Patrick talking about people who say you don't raise taxes during a downturn," said Downing, who left office in 2017 and who now is vice president of new market development at Nexamp, a company working on solar energy solutions.
"He would say you've also got to consider the kid who's going through third grade, the student who's trying to get health insurance, the worker who's unemployed and needs a little bit of help from a food pantry. You're trying to mitigate pain across the board."
While Democrats considered an array of proposals, including Patrick's move for a 19-cent bump in the gas tax, Downing said it was his job as chair of the Senate's revenue committee to find a solution with enough support to pass. While he would have preferred to raise the income tax — and later supported Patrick's efforts at progressive tax reform — he said the sales tax increase was the best plan that could pass.
Downing said the sales tax increase succeeded in preserving the state's investments in communities, although he now believes that the state missed an opportunity for income tax reform to get top earners to pay a greater share.
"I think we passed, but certainly not with the flying colors that we had the opportunity to achieve," he said. "I'm glad we were able to preserve the core services, preserve investments in our communities, but we didn't set up Massachusetts to be fairer and stronger in the long term as we could have."
Some Democrats joined Republicans in opposing the sales tax increase, saying they didn't want to do anything to hurt the wallets of those already struggling. State Rep. John Barrett III, D-North Adams, was mayor of North Adams in 2009, and he said he opposed any recession-time tax increase.
"At the time, I was not enamored by the sales tax increase," Barrett said, adding that, as mayor, he sought to use rainy day funds to balance budgets. "Raising taxes during a downturn in a bad economy doesn't work as economists claim it will — it didn't work back then and it won't work now."
State Rep. William "Smitty" Pignatelli, D-Lenox, voted for the sales tax increase when it cleared the House by a 108-51 vote, and he said the move was consistent with what other states were doing.
In the current recession, though, high unemployment makes tax raises unappealing, he said. The Massachusetts Department of Unemployment Assistance estimated the state's unemployment rate in May to be 16.3 percent. Its estimate for May 2009 was 8.2 percent.
For this recession, Pignatelli believes the response should be a combination of drawing responsibly from the state's rainy day fund, closing corporate tax loopholes and evaluating spending priorities.
"I don't think it's an environment ripe for tax increases," he said, although he supports progressive tax reform in the long term. "That is a constitutional change and has to be done through a process," he said.
Gerald Friedman, an economics professor at the University of Massachusetts-Amherst, said that continued government spending during a recession is important to keep money in the economy, even if it means raising taxes, although he hasn't seen any studies of Massachusetts' response to the Great Recession.The sales tax, he noted, is a "regressive" tax, meaning it takes a greater portion of the income of lower-wage earners than higher-wage earners, and can hurt employment in regions near state borders. He would prefer to raise income taxes.
Downing said he believes the Legislature should "absolutely" consider an income tax increase now, and he believes there are ways to use exemptions and the earned income tax credit to ensure that an income tax increase doesn't hurt low- and middle-income taxpayers.
Cuts to the income and capital gains taxes over the past 40 years might have hindered Massachusetts' preparation for a crisis, Downing said, and also have left the economy "slanted more toward the top earners." Economic development largely has favored Boston and surrounding areas, he added, leaving other local economies less resilient.
While Downing praised the Baker administration's response to the crisis, "the decisions of this administration and those before created short-term tax relief over long-term investments in our communities," he said.
"Ahead of COVID-19, cuts in the income tax limited Massachusetts' ability to make investments in our public health, in safety, more generally that could have mitigated some of the impacts of the virus," he said. "Despite the best efforts of many, we're falling behind in funding public higher education, areas around economic development, our state parks and environmental agencies."
Further, he said the two most recent recessions show that an overhaul of the income tax system is long overdue.
"It needs to ask more of the wealthiest in our communities and our societies," Downing said, "and it has to enable investment into building a stronger, fairer Massachusetts."
Danny Jin, a Report for America corps member, is The Eagle's Statehouse news reporter. He can be reached at email@example.com, @djinreports on Twitter and 413-496-6221.
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