Monday, October 25, 2010

Massachusetts and Washington State Have Significant Tax Referemda on the Ballot

Massachusetts and Washington have polar opposite tax referenda on the November 2 Ballot. Washington’s measure is to impose an income tax on the rich while Massachusetts’s is to roll back a sales tax increase.

Warren Buffett has loudly proclaimed that he is undertaxed. His good friends, the William Gates’, senior and junior, now share his perspective. Instead of simply writing out a check to the government for whatever they believe they should pay, they propose that we pay higher taxes to assuage their guilt.

Washington is a state of great natural beauty. Its attractiveness to business and entrepreneurs is the lack of a corporate or personal income tax. The Washington Supreme Court in 1933 interpreted the Washington State Constitution to allow only a uniform tax on property. Attempts to amend the state constitution to impose an income tax have been unsuccessful to date.

The Gates have proposed a misnamed millionaire’s tax, starting at an income of $200,000 for singles and $400,000 for couples. The rate would be 5%. It will rise to 9% for individuals at $500,000 and $1,000,000 for couples. The 9% rate would be among the highest personal income tax rates in the country.

Opponents of the proposed taxes include Paul Allen, co-founder of Microsoft, Steve Ballmer, CEO of Microsoft, and Jeff Bezos, founder and CEO of

$6.2 million has been raised in support of the proposed income tax. Bill Gates, Sr. put his money where his mouth is and contributed $500,000 to the campaign.

However, the biggest supporters, contributing $4.1 million, are the public employee unions, mostly from the SEIU and the NEA. The unions are positively salivating at an additional pot of gold in Olympia.

The Gates’, if successful, are pushing Washington into the ranks of California, Illinois, and New York in over-taxing and over-spending at unsustainable levels.

Washington has been successful as a state without an income tax.

Massachusetts has a different problem. Since the overspending days of Governor Dukakis, the state has had a problem balancing revenues with ever rising expenditures. The state constitution limits the income tax to a flat rate.

The practical limit on raising the sales tax is that a large percent of the Massachusetts public live within a short drive of New Hampshire, which has neither an income nor sales tax. Massachusetts residents, including a state Senator, routinely drive to the New Hampshire State Liquor Store across the state border.

The state legislature, desperate for cash last year, raised the sales tax rate to 6.25% from 5%, and extended it to alcoholic beverages. Merchants and alcohol purveyors in Western Massachusetts lost business since the sales tax rate in adjoining Connecticut is 6%.The Legislature lived up to the state’s nickname “Taxachusetts.”

Voters responded by qualifying two referenda measures on the November ballot.

Question 1 will repeal the sales tax on alcoholic beverages.

Question 3 would roll back the sales tax rate to 3%. Passage of

Question 1 could result in an estimated loss of $2.3 billion to the state’s coffers.

The group founded in opposition to Question 3 is the Massachusetts Committee for Our Communities. It spent $2 million against the proposal from October 2-15. All of the money came from unions, including three teachers unions, the American Federation of Teachers, the Massachusetts Teachers Association, and the NEA. Unions have invested over $4 million into the campaign.

The supporters of Question 3 have raised very little funds. Hence, almost all of the advertising is pro tax.

The unions spent $7.3 million in 2008 to defeat another measure that would have eliminated the state’s 5.3% income tax.

Question 3 is trailing in the polls in Massachusetts, especially in Western Massachusetts. The economy of Western Massachusetts has steadily shrunk, and it is heavily dependent on state funding.

Which way will the voters in the progressive states of Massachusetts and Washington vote on taxes on November 2? If Washington voters vote no to an income tax and Massachusetts vote to rescind the tax increases, and then some, a strong message will be sent nationally.

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