Taxachusetts: it’s a label that pokes fun at Massachusetts’ history of high taxes and government spending. However, over the past 30 years the state nicknamed “Taxachusetts” has actually dropped 17 places on the Tax Foundation’s ranking of heaviest state and local tax burdens. Since 1980, the Commonwealth has had a property tax limitation and has striven (most of the time) to keep a lid on its personal income tax rate. Today, Bay Staters will have a big chance to make Massachusetts more hospitable to taxpayers, with statewide ballot Question 3 – a rollback of the state’s sales and use tax from 6.25 percent to 3 percent. If passed, it would save each family an estimated average of $900 a year and encourage more prudent budgeting in government.
Question 3 sends a clear message to the General Court and Governor after their approval of a sales tax increase from 5 to 6.25 percent last year: enough is enough. Unsurprisingly, however, the groups profiting from the status quo – predominantly the public sector unions – oppose the measure. They claim the tax cut would starve the Commonwealth of $2 billion to fund services like police, fire, and education. But the people who pay government’s bills are smarter than that.
Massachusetts spent $52 billion in 2009 according to the Comptroller’s Comprehensive Annual Financial Report. If the measure passes, Question 3’s savings to taxpayers would roughly equal 5 percent of this amount. Why can’t government trim a modest 5 percent from its budget? The answer is that it can.
For example, local news outlet WBZ-TV found that 21 road projects completed in the past three years came in more than 100 percent over budget: a cost of about $100 million extra. More places to trim? How about addressing the exploding municipal health care costs and over-generous government retirement plans, which are wrecking local budgets and pressuring the state government to direct more money downstream? The Globe reported that municipal health plans pay as much as 89 percent of premiums, while typically requiring $5 copayments for office visits and $25 for emergency room treatments. Plans in the private sector typically pay less than 70 percent of premiums, and require $20 copayments or more for office visits and $100 for emergency room treatments.
Tackling wasteful spending rather than raising taxes, can have other benefits too. According to the 2010 American Legislative Exchange Council (ALEC)-Laffer State Economic Competitiveness Index, states boasting higher tax rates and spending tend to not perform as well as their more taxpayer-friendly counterparts. The states were ranked based on 15 policy variables over ten years, including tax burdens. The best ten states saw an average growth rate in state gross domestic product and personal income that was about 50 percent better than the worst ten states.
Why such disparities? Because now more than ever, people, capital, and businesses are mobile. According to ALEC, the biggest losers have been higher-taxed places like New York, California, Illinois, and Michigan. These states saw a combined loss of over 2 million people to states like lower-taxed Texas, Florida, and Arizona over the last decade. During that same time, Massachusetts trailed not too far behind the laggard states, losing over 300,000 residents. And with so many of its neighbors boasting lower sales taxes, it’s probable that Massachusetts will see its competitive edge slip further away if the rate remains at 6.25 percent. Connecticut and Vermont have lower rates and New Hampshire has no tax at all.
Macroeconomics aside, Question 3 would likely appeal to cost-conscious consumers even if the economy weren’t as shaky – it’s estimated to save each family an average of $900 a year on everything from appliances to over-the-counter medicines. For example, with the purchase a $10,000 car a person will save $325 in reduced sales tax and $650 after buying a $20,000 car.
In August Commonwealth shoppers got a tiny taste of relief from a two-day sales tax “holiday.” Instead of short-lived gimmicks like these, why not keep the tax at a more reasonable rate year-round, one that will help the entire Bay State economy thrive? Perhaps residents will answer that question by enacting another one – Question 3.