When you hear the name Massachusetts, a lot of ideas and images come to mind, including the Boston Tea Party, Harvard Yard, The Red Sox, Cape Cod, “Cheers,” and the Dropkick Murphys. You probably also think of Massachusetts’ high taxes when someone mentions the state’s name; who hasn’t heard of or said “Taxachusetts” in reference to the Bay State? But, strange as it may sound, the state notorious for taxation could be the one to lead the way to lower taxes for the nation this November.
This fall, Massachusetts will vote on three ballot measures. The measure most worth watching is Question 3, which would reduce the state’s 6.25% sales tax rate to 3% on January 1, 2011. The sales tax rate rose from 5% to the current rate of 6.25% only last year. Question 3 is a citizen-initiated ballot question. The most recent polling data says that 54% of Massachusetts’s voters support the measure while 44% oppose and 7% remain undecided. Question 3 has also become a hot topic in the gubernatorial race.
The fact that a sizable majority of voters in Massachusetts favor reducing the sales tax is a welcome and important development. I’m always pleased to see people who express their concern about high taxes. But it appears Bay State voters finally have realized that more taxes and spending, year after year, cannot sustain the state’s economy or promote economic growth. The voters now know it is lower taxes that spur economic activity, job creation, and growth.
Reducing the sales tax would likely have a positive impact on Massachusetts’ economic competitiveness, especially compared to its neighbors. According to the American Legislative Exchange Council, Massachusetts’ ranking on its economic competitiveness index slid from 22nd to 26th last year. Massachusetts currently has the fifth highest state and local tax burden in the nation, which is greater than the burdens taxpayers face in the neighboring states of Rhode Island (tenth highest), Vermont (twelfth highest), and Maine (twenty-first highest). Moreover, Massachusetts’ also has one of the highest sales tax rates in New England; Connecticut and Vermont impose a 6% tax, Maine levies a 5% tax, and New York collects a 4% sales tax. But New Hampshire beats them all because it levies no sales tax.
With a lower sales tax rate, Massachusetts will be able to better compete with its neighbors for consumers and businesses, which will foster economic growth. Bay State residents and businesses will be less likely to leave and spend their tax dollars somewhere else. Brookline soccer moms will be less likely to drive up I-93 to save money by paying no sales tax on clothing and groceries. Families would also save on large purchases like cars; a family could save $650 on a $20,000 car under the 3% tax rate. A lower sales tax rate also means that college kids in Boston won’t be as likely to drive up to Nashua to stock up on cheap liquor for the frat party because there won’t be as much savings. Taxes are very powerful incentives, especially when the tax rates are high.
Massachusetts is one of the few states with a straightforward tax rate reduction on the November ballot. Let’s hope it passes and sets an example for the nation to follow.