Friday, December 18, 2009

Massachusetts has a Math Problem with the Sales Tax

Navjeet Bal, Massachusetts Revenue Commissioner, touted the recent increase in the state sales tax for raising sales tax revenues 9.2% above last year’s to $1.8 billion for the first five months of the fiscal year. She estimates sales tax revenues will exceed last year’s by $689 million.

An almost $700 million increase in sales tax receipts in an otherwise depressed economy seemingly indicates a vibrant economy.

The truth is unsettling for the 9.2% increase in revenues came from a 25% increase in the sales tax rate to 6.25% as well as extending the tax to previously non-taxable products, such as beer, wine, and alcohol.

Navjeet said that without the tax increase, sales tax revenues would have fallen by 7.5%. The numbers don’t add up. A 9.2% increase, coupled with a saved 7.5% drop in revenues, do not add up to 9.2%, and certainly don’t equal the 25% tax increase.

In other words, the Commonwealth of Massachusetts is squeezing more revenue out of sharply declining retail sales, a shrinking retail base.

Can anyone say New Hampshire?

Even in his wildest tax raising sprees, Governor Michael Dukakis did not raise the sales tax – almost every other conceivable tax, but not the sales tax. He knew that New Hampshire with no sales tax adjoins Massachusetts, and lies within a short driving distance of most Massachusetts residents.

He realized that a sales tax increase would drive business to New Hampshire, especially with large ticket items.

The booze business was already a large money maker for New Hampshire. The state’s low priced liquor stores lie astride the interstate highways leading into the state. Low priced, and no sales tax, are a seductive lure for Massachusetts, Maine, and even Connecticut residents.

It doesn’t take a rocket scientist or Harvard grad to figure that one out – just an ounce of common sense.

Governor Duvall Patrick lacks even that understanding. He’s a Harvard grad, but probably should have consulted the economics experts at MIT.

Among the Massachusetts residents now frequenting the New Hampshire State Liquor Store is Representative Michael Rodrigues of Fall River, Massachusetts, a state legislator since 1991. A Massachusetts resident caught the Representative’s car parked in front of the New Hampshire State Liquor Store. His car even had Massachusetts legislative plates on it.

The internet also lacks a sales tax.

Patrick and Rodriguez both lack common sense, not to mention math skills.

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