THE STATE'S dismal revenue forecasts and unprecedented cuts in services leave lawmakers little option but to raise more than $1 billion in new taxes. The question is how to accomplish that while putting the least strain on struggling taxpayers.
In the budget debate, House leaders will be focusing sensibly on the state's 5 percent sales tax. It ranks lowest among the 45 states that have a sales tax, once adjusted for personal income, according to the Massachusetts Taxpayers Foundation. House Speaker Robert DeLeo is considering a plan to raise the tax from 5 percent to 7 percent, which could raise about $1.5 billion in new revenue. A 2-cent hike may be excessive, but a sales tax is the right place to look.
As a rule, sales tax revenues grow more slowly than personal income. That means that legislators wouldn't be prone to spend profligately when the economy rebounds. And in recessionary times like these, the dropoff in sales tax revenue tends to be less steep than the fall in personal income tax revenue. Core services could be protected.
A reasonable compromise could be reached, as long as lawmakers spread the burden fairly, such as by closing tax loopholes for telecom companies, and cut down on waste in the public pension system and elsewhere in state government.
Adding 1 cent on the dollar to the sales tax would yield $750 million. By maintaining the current exemptions for food and clothing (above $175), the increase wouldn't fall disproportionately on the poor and middle class. Massachusetts would rank only 42nd in the nation in sales tax burden after such a modest increase, according to the Taxpayers Foundation. Families would adjust their purchasing habits, but their income and savings would remain intact.
Lawmakers, however, should go a step further and remove the sales tax exemption on gasoline. That would have the dual benefit of raising roughly $400 million for transportation while modifying driving habits to the benefit of the environment.
Governor Patrick continues to promote his own plan to raise the state's gas tax, along with eliminating exemptions on sales of alcohol, soda, and candy. As a matter of policy, Patrick's approach is laudable. His 19-cent gas tax plan, for instance, would pay transportation costs with money from a transportation-related source. But flexibility is in order. Legislators are loath to take numerous tax votes. A broad-based sales tax hike would offer lawmakers a straightforward solution.