On the last sales tax holiday, I splurged and bought the Taj Mahal of swing sets, plunking down $2,400 for a monument to fun (First kid, don’t judge). This year I will probably head over to Costco and buy six jumbo boxes of diapers just to stick it to the tax man (Second kid, standards change).
Many residents of Massachusetts will be doing the same thing this weekend, stocking up to take advantage of a sales tax holiday that saves them 6.25 percent on most purchases. The two-day reprieve cost the state $23 million last year, but our Beacon Hill leaders feel good about the move because it helps consumers and drives extra business to merchants.
You know what would feel really good? The state rolling back the sales tax to 5 percent. Raised in the throes of the Great Recession, when the world as we know it was crumbling, the sales tax is generating close to $1 billion more a year now than it was then.
We have been paying the higher tax rate since August 2009, and now that the economy is recovering and all tax revenues are stabilizing, it’s time to lay the groundwork for a lower sales tax. The state posted $627 million more in tax revenues than anticipated last fiscal year, according to preliminary figures. And when we give more money, Beacon Hill is certainly comfortable spending it, increasing the state budget last year and continuing the trend this year in part by raising $500 million in taxes on cigarettes, gas, and computer services.
More than a dozen states bumped up their sales taxes during the recession, and now some are reversing course. California, Arizona, and North Carolina have lowered their tariffs, and the District of Columbia will return to its 5.75 percent rate, down from 6 percent, in October, according to the Tax Foundation, a nonpartisan research organization.
Economists generally don’t like raising the sales tax because it’s a regressive measure, meaning it disproportionately hurts those at the bottom of the economic ladder. Earlier this year, Governor Deval Patrick proposed to lower the sales tax to 4.5 percent while raising the income tax from 5.25 percent to 6.25 percent and doubling personal exemptions.
It was a bold plan that went nowhere.
Keeping the sales tax at 6.25 percent will end up hurting those who can least afford it, and discouraging spending overall.
“We cannot afford to cut the sales tax, no matter how politically popular it might be to do so,” said a statement issued Tuesday by state Representative Jay Kaufman, a Democrat from Lexington who is the House chairman of the Joint Committee on Revenue. “Any reduction in the state sales tax would trigger an adverse impact on the state’s economy.”
No it wouldn’t. If you give people, meaning consumers, more money to spend, that’s what helps the state’s economy. Kaufman is talking about helping the state government, which is different.
We have already done our part. Last fiscal year, the state collected $4.26 billion in sales tax on goods and services, a number that has steadily risen from $3.24 billion in 2009, the year the rate went into effect. With an improving economy, that number will keep going up.
Plus the balance sheet will only get better because of the Internet. Amazon.com has agreed to start collecting sales tax on Massachusetts purchases after Nov. 1 because it now has an office in Cambridge, triggering a federal law that allows states to collect sales tax from online retailers that have a physical presence in the state. The Retailers Association of Massachusetts estimates that Amazon will bring in up to $45 million in tax revenues. Congress is also weighing a federal law that would no longer exempt most Internet retailers from collecting state sales tax. That measure, backed by Amazon, passed the US Senate in May. The National Conference of State Legislatures has estimated that Massachusetts could reap, in total, $268 million in tax revenues from online purchases.
The state will always find a way to spend whatever money we send its way, and then claim to never have enough. That’s what governments do, now as always. It’s better to have money in the pockets of consumers than in the hands of state legislators. That’s how you raise sales tax revenues, not by depending on a jacked-up rate.
This isn’t 2009 anymore.Shirley Leung can be reached at email@example.com. Follow her on Twitter @leung.