Opinion

SCOT LEHIGH

A duel between tax plans

10/27/14: Boston, MA: As the sun sets on the Deval Patrick administration's time at the Massachusetts State House, staffers are preparing for the transition to a new governor and their staff's needs. (Globe Staff Photo/Jim Davis) section: metro topic: 31CapitalTransition

Jim Davis/Globe Staff/File

Jon Hurst, president of the Retailers Association of Massachusetts, is about to inject an X factor into the state’s fiscal and political debate.

Beacon Hill Democrats have been proceeding upon the assumption that they’ll have a popular measure — a tax hike on million-dollar earners — on the ballot in November 2018. That proposed constitutional amendment should bring progressives to the polls. And, depending on how tax-increase-averse Governor Charlie Baker plays it, may give the eventual Democratic gubernatorial nominee an issue to use against the GOP incumbent.

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That plan faces an impending legal challenge, and needs a second legislative vote before it lands on the ballot. But if it clears those hurdles and passes, lawmakers will have another $1.9 billion or so flowing annually into state coffers.

Now come Hurst and his 4,000-member association with a tax scheme of their own: A possible 2018 ballot question to lower the state sales tax from 6.25 percent to 5 percent or less. The 25 percent hike in the sales tax, which took effect in 2009, has been a lasting burr under the retail saddle, as is the tax-free treatment of online purchases from out-of-state companies. Given the federal political and legal hurdles to broader taxation of Internet sales, the latter situation isn’t likely to change anytime soon. Meanwhile, Beacon Hill policy makers haven’t been particularly attentive to the retailers’ other state concerns. Last year, they failed to authorize a sales-tax holiday.

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All of that has prompted Hurst’s group to rethink their approach.

“For two decades, we have been trying to get the Internet guys to collect the sales tax,” Hurst says. “But there are two ways to skin this cat. The other way is to lower the tax rate for our local retail businesses.” Given the relatively regressive nature of the sales tax, what would be good for merchants would also be good for low-income residents, Hurst says.

Hurst’s group hasn’t yet made up its collective mind to go forward with a ballot question; if they win favorable consideration on Beacon Hill, they probably wouldn’t. Nor have they decided upon their proposed sales tax rate, though Hurst says it would likely be in the 4.5 to 5 percent range. But imagine if the two tax measures are both on the 2018 ballot. The millionaire’s tax would raise about $1.9 billion. A sales tax reduction to 5 percent would cost the state $1.2 billion, while a 4.5 percent rate would mean a $1.7 billion revenue loss, according to the Massachusetts Taxpayers Foundation.

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So Campaign 2018 would present voters and political candidates with four menu choices. Let’s call them:

The revenue-hungry liberal: Yes on the millionaire’s tax, no on the sales tax cut. State revenue gain: $1.9 billion.

The pro-small-business moderate: Yes on the millionaire’s tax, yes on the sales tax cut. Net revenue gain: $200 million to $700 million.

The status quo: No on both; no revenue change.

The full fiscal conservative: No on the millionaire’s tax, yes on the sales tax cut. Net revenue loss: $1.2 billion to $1.7 billion.

Then there’s the question of how candidates would spend whatever new tax revenue they favor (or, for full fiscal conservatives, of what they’d cut). The proposed constitutional amendment mentions education and transportation. And would they simply add it all to the budget base, or tuck some away in the state’s rainy day reserves?

There’s certainly a good case to be made for more education spending. But if there is a substantial infusion of new money, some should come in the shape of competitive grants to encourage things like extended learning time and a commitment to best practices. And to fund programs like digital literacy and computer science education.

It’s all a debate the state needs to have. And one that should make campaign 2018 a lively and multi-faceted fiscal affair.

Scot Lehigh can be reached at lehigh@globe.com. Follow him on Twitter at @GlobeScotLehigh.
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