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Business girds for battle on sales tax

Leaders blast plan as threat to economy

By Matt Viser
Globe Staff / April 25, 2009
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Business groups have started mobilizing to fight a proposed increase in the state's sales tax, launching orchestrated letter-writing campaigns, meeting with lawmakers individually, and flooding legislators with letters opposing the increase.

Associated Industries of Massachusetts, which began asking its members to start lobbying Thursday afternoon, said they sent nearly 1,400 letters in less than 24 hours.

"I don't think they get it," said Jon Hurst, president of the Retailers Association of Massachusetts, which began distributing fliers opposing the sales tax increase to lawmakers yesterday. "In my 20 years, this is the biggest threat that I've seen to Main Street Massachusetts."

Business groups are reacting to proposals that House Speaker Robert A. DeLeo has said he is open to, including raising the 5 percent sales tax to as high as 7 percent. But DeLeo has assiduously avoided staking out a firm public position and refused to address reporters yesterday after meeting with House members for nearly four hours.

Instead, Representative Charles A. Murphy, chairman of the House Committee on Ways and Means, said that he thought a 7 percent sales tax was "way too high."

The tax debate is DeLeo's first major test as speaker, and the current debate puts him at odds, at least philosophically, with Governor Deval Patrick. Patrick has said he is opposed to increasing broad-based taxes, even though he has not ruled rule out supporting a sales tax increase later and has not said whether he would veto one.

"I am very skeptical of a sales tax," Patrick told reporters yesterday. "We have put proposals on the table for very targeted ways of dealing with our budget needs and transportation. . . . It means we don't raise money for the status quo. It means we raise money for particular needs."

Increasing the sales tax from 5 percent to 6 percent would raise about $750 million a year, according to estimates frequently cited by economists and lawmakers. Raising it another percentage point, to 7 percent, could bring in a total of $1.5 billion in new revenue per year, according to the estimates.

The Massachusetts Taxpayers Foundation released a report yesterday that estimated that a 1 percentage point increase in the sales tax would have produced $778 million this year, but that would decline to about $724 million next year because retail sales are falling with the economy. The study also estimated it would cost the average resident $120, or about $325 per household.

But a study released recently by the fiscally conservative Beacon Hill Institute at Suffolk University says the financial boost would be much lower.

The study estimates that increasing the sales tax to 6 percent would raise an additional $834 million. But once other factors are taken into account, such as consumers spending less money, the state would only gain about $520 million. The study also estimates that businesses would spend $41.3 million less and that 10,182 jobs would be lost. The study also says that it would hurt border communities, encouraging residents to make purchases in tax-free New Hampshire or online.

DeLeo spent much of yesterday in meetings, trying to figure out what his leadership team wants to do. There was a flurry of discussions, including whether to raise the state sales tax by 1.5 percent and dedicate $300 million of the new revenue to transportation, instead of raising the gas tax, as Patrick has proposed.

"I think his objective was to get a sense of if there was any sort of consensus on where we are going," Representative Robert Spellane, a Worcester Democrat and House chairman of the Committee on Public Service, said of DeLeo. "The bottom line was, there wasn't."

DeLeo's spokesman, Seth Gitell, released a statement that acknowledged that meetings had been held and "some members expressed interest in a number of tools, including the sales tax."

"He will continue to work with his leadership team to forge a consensus that works for Massachusetts during a very difficult climate," Gitell said.

The House will begin debate on the budget next week, with dozens of amendments on raising new revenue coming up Monday. House Democrats are planning to huddle Monday morning to decide which approach to take.

A group of advocates for schools, workers unions, and municipalities are planning to hold an event at noon Monday to encourage lawmakers to raise new revenues to offset some of the budget cuts.

House Republicans are planning to hold a press conference Monday morning to blast the sales tax proposal. They will be joined by business groups, including the Retailers Association of Massachusetts and the National Federal of Independent Business. Chambers of commerce from across the state are also lobbying against the proposal to increase the sales tax.

"We're opposed," said Paul Guzzi, president of the Greater Boston Chamber of Commerce. "We think it both hurts small business and it hurts individuals."

Guzzi said the chamber has been holding conversations with senior lawmakers, but did not have plans for letter-writing campaigns or other protests.

A 7 percent sales tax would give Massachusetts one of the highest sales taxes in the country.

Matt Viser can be reached at maviser@globe.com.