Tuesday, May 12, 2009

Massachusetts Eyes Sales Tax Increase – Loss of Private Sector Jobs high versus Saved State Jobs

The State of Massachusetts, in a never ending quest of Deval Patrick’s’ administration and the Democrat Legislature to tax their way out of massive spending, are seeking a 25% increase in the State Sales Tax. The Massachusetts Retailers Association has predicted that should this increase occur, the Commonwealth stands to lose approximately 12,000 private sector jobs, while the Administration will save 6,000 State jobs. The argument used by the administration for the increase is based on a study by the Massachusetts Taxpayers Foundation and Beacon Hill Institute - Massachusetts ranks last in sales tax collected out of 45 states that have a similar tax. That said, this study does not take into consideration that Massachusetts has a variety of taxes and fees in place that are responsible for individuals and businesses leaving for greener pastures, while leaving those remaining to pay for the excess of Beacon Hill.

The Governor has multiple tax proposals before the Legislature in order to shore up the ever increasing budget deficit – State Lawmakers are eyeing the sales tax as a means to lessen the impact of multiple taxes on the Commonwealth, however, logic dictates that a 25% increase in the sales tax will be a boon to surrounding States, rather than Massachusetts.

Retailers in bordering New Hampshire will see an increase in sales, while those in Connecticut, who have previously lost to Massachusetts’s slightly lower sales tax, will find their citizens staying home to shop. Internet retailers outside of the Commonwealth will also benefit.

To answer the question why any increase in sales taxes produce job losses in the private retail sector, one need only to look as far back as the summer of 08, when gas prices surged to unprecedented heights, aided by both Federal and State taxes. Consumers were forced to choose between a commute to work and spending on luxury items as well as necessities, the Stimulus Checks received from the Federal Government went to pay credit card bills, resulting largely from gasoline purchases as well as an overall increase in essentials such as groceries. (A rise in retail, including grocery prices are a direct result of the trucking industry paying higher prices for fuel passed onto the consumer.) The burden placed on retailers by the rise in gasoline prices contributed heavily to the demise of retail giant, Circuit City.

Ultimately it will be up to the Governor and his simpatico Legislature to choose between the welfare of the people of the Commonwealth and the welfare of the State Government, which said outcome, is fairly predictable given the propensity for the State to do avoid reforming bloated programs and corrupt policies over protecting the last available taxpayers. (See current battle over unusual Commonwealth pension practices suddenly a focus of the Patrick Administration.)

Addendum:
Correction: The Retailers Association used Data by the Beacon Hill Institute – to oppose the increase. The Beacon Hill Institute is not in favor of a tax increase in the Massachusetts sales tax.
Excerpts appear below:
From the Springfield Republican article found here
“The Retailers Association of Massachusetts released the study Monday ahead of a possible state Senate vote next week to increase the sales tax. The study, prepared for the association by the Beacon Hill Institute at Suffolk University in Boston and updated from a prior report, focuses on the economic effects of increasing the sales tax from 5 percent to 6.25 percent. The state House of Representatives on April 27 voted 108-51 for the increase.”

4 comments:

David Tuerck said...

You incorrectly stated that the Patrick Administration is sponsoring the increase in the sales tax and that it is doing so in part on the basis of a study by the Beacon Hill Institute. Neither statement is true. The Administration opposes the increase, and the Beacon Hill Institute, rather than supporting the increase, provided the data about the job losses that you cite in your blog.

David G. Tuerck
Executive Director
Beacon Hill Institute

Tina Hemond said...

Dear Mr. Tuerck,
On the issue of the tax increase (or more to the point increase in taxes (general) by the Patrick Administration and an in-concert legislature) – I stand by my opinion – the legislature is seeking an increase in the sales tax in an effort to offset taxes proposed by the Governor – either way one parses it, tax increases are supported by the Governor. On the second point, I stand corrected – It was data from the Retailers Association by the Beacon Hill Institute – used to oppose the increase.
Excerpts appear below, and I will add an addendum to the main post regarding the Retailers Association and the Beacon Hill Institute’s data used in opposition to the tax increase


From the Springfield Republican article found here“Buoniconti said people appear more upset about Gov. Deval L. Patrick's bill to increase the gas tax by 19 cents.”

Further from the same reference:
“The Retailers Association of Massachusetts released the study Monday ahead of a possible state Senate vote next week to increase the sales tax. The study, prepared for the association by the Beacon Hill Institute at Suffolk University in Boston and updated from a prior report, focuses on the economic effects of increasing the sales tax from 5 percent to 6.25 percent. The state House of Representatives on April 27 voted 108-51 for the increase.”

“Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, said the Beacon Hill Institute is overestimating job losses from the proposed increase. "It doesn't seem reasonable given .¤.¤. we will still have a very low sales tax," he said.

Widmer also stood behind an estimate that the state would raise an additional $900 million from the increase.

Of the 45 states with a broad-based sales tax, Massachusetts ranks last in sales tax revenues collected per $1,000 of income, according to a foundation study. Even if the increase to 6.25 percent is approved, Massachusetts would only place No. 42 out of the 45 states, the foundation said.”

Ralph Short said...

David, are you saying the "Governor" will veto an increase in the state sales tax if it is put on his desk??

The second question would be has he, or almost any other democrat elected, ever vetoed a tax increase, especially in a state like Mass.

Ralph Short
in the really free state of South Carolina

David Tuerck said...

My post-comment comments: (1) Patrick does oppose the higher sales tax. He wants a higher gas tax. True, given a choice between the higher sales tax and nothing, he might not veto the higher sales tax. (2) If our jobs effect is "too high," than I'd like to know what effect is correct. We showed you our modeling resuls. Now you show us yours. (3) The $900 million estimate is almost certainly based on the entirely unbelievable assumption that the higher tax will not divert one dollar in sales to the other states. That estimate is therefore clearly an exaggertion of the true amount.

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