Governor Charlie Baker on Wednesday said he wants to turn some of the state’s expected budget surplus into a two-month sales tax holiday. But he almost immediately faced resistance from lawmakers with other ideas for the money.
Baker filed legislation on Beacon Hill proposing a 60-day break from the 6.25 percent sales tax Massachusetts assesses on many consumer goods, from Aug. 1 through Sept. 30. He estimated the move would return about $900 million to taxpayers and businesses, and would be covered by tax revenues that through May were running $3.9 billion ahead of projections, along with a big infusion of federal money.
“This proposal will help taxpayers keep more money in their pockets and encourage more people to shop locally,” Baker said Wednesday. “It will especially help lower-income residents who are the most affected by the sales tax in the first place.”
The plan needs approval from the Democratic-controlled legislature. And key lawmakers there quickly pushed back against the idea.
Senator Michael J. Rodrigues, a Westport Democrat and chair of the Senate Ways and Means Committee, was surprised by Baker’s announcement, saying a two-month sales tax holiday was the “furthest thing from our radar,” and a “gimmick.”
“A sales tax holiday is really irresponsible to the citizens of the Commonwealth,” he said. “We have an opportunity with these once-in-a-lifetime funds to really make differences in areas like child care, in areas like higher education, in areas like long term care facilities, nursing homes.”
A variety of advocacy groups also quickly lodged objections. In a joint statement, the heads of the state’s two largest teachers unions said it would be wiser to invest in the state’s schools and colleges and a transportation system that is strapped for cash.
“As we emerge from the pandemic, the needs in Massachusetts have never been greater,” said Massachusetts Teachers Association President Merrie Najimy and AFT Massachusetts President Beth Kontos, in a statement. “They require smart decisions that provide for long-term investments in our future. Instead, Governor Baker wants to spend $900 million to boost the profits of large, out-of-state big-box stores and online retailers.”
Still, the plan was not without its fans.
Jon Hurst, president of the Retailers Association of Massachusetts, said the 2018 US Supreme Court decision allowing states to charge sales tax on online purchases from out-of-state sellers essentially buttressed Massachusetts’ budget by paving the way for widespread taxation of online sales, which surged during the pandemic. But most of those online purchases sent money out of state. A tax holiday for local retail will encourage more consumers’ money to stay here instead, he said.
“It gives back to the taxpayers [while] incentivizing them to invest those dollars with small businesses in the Commonwealth,” said Hurst, who urged lawmakers to give it careful consideration.
The Massachusetts Fiscal Alliance signaled its support too, noting that brick-and-mortar retail was “one of the hardest hit sectors of the economy during the pandemic.”
“We commend Governor Baker for putting this massive surplus to good use by routing it to policies that will help them recover,” said spokesman Paul Craney.
Still, retailers this summer are dealing with surging demand for a wide range of goods, supply bottlenecks, and a widespread labor shortage. Waiving sales taxes for two months won’t help with most of that, said state Senator Eric Lesser, the Longmeadow Democrat who co-chairs the economic development committee.
“What I am hearing from the business community, in particular from small businesses, is that people are coming back, things are getting better, but they now are facing rising costs of goods and they’re facing a shortage of workers,” he said. “A sales tax holiday does not do anything to address either of those issues.”
It would help everyday residents, Baker said, particularly lower-income residents who often spend a higher share of their income on items that are subject to the sales tax. After a very tough 15 months, he said, that’s not a bad thing.
“Our taxpayers and our small businesses all deserve a break,” he said.
Marie-Frances Rivera, president of the left-leaning Massachusetts Budget and Policy Center, agreed with that sentiment, but also said the proposal “presents challenges.”
“On the one hand, shifting our state tax system away from taxes like the sales tax, that fall most heavily on low-income households, makes good sense,” she said in a statement. “Unfortunately, spending the surplus this way forecloses the ability to make investments that will transform opportunities for everyone in our Commonwealth – particularly for our low-income and BIPOC communities.”
No matter what lawmakers decide on Baker’s two-month proposal, the state’s annual two-day tax holiday will go forward as planned, on Aug. 14 and 15.