Gov. Deval Patrick’s proposal to lower sales tax while raising income tax rates is meeting with both praise and skepticism in the region, which competes with “tax-free” New Hampshire on a daily basis.
Admitting “there’s no good time to raise taxes,” in his State of the State address Wednesday night, Patrick proposed one of the largest tax increases in recent memory, raising the income tax from 5.25 percent to 6.25 percent, a level unseen since at least before the 1967, according to records from the Department of Revenue. It would also be the first time the governor, or Legislative leaders, broached the topic of raising broad-based taxes since 2009 when the sales tax was increased to 6.25 percent.
If approved by the state Legislature, the 19 percent increase in the income tax would net the state an additional $2.2 billion in annual revenue. The additional money would increase spending for education and the maintenance and repair of the state’s faltering transportation infrastructure.
To offset some of the burden placed on residents by the income tax increase, Patrick also proposes the Legislature reduce the sales tax from 6.25 percent to 4.5 percent, a 28 percent reduction. The loss in state revenue in this area will cost the Commonwealth about $1.1 billion.
The governor further proposes eliminating some corporate tax deductions worth $200 million, netting the state $1.9 billion in annual new revenue. Patrick may also call upon legislators to double the personal tax exemption, and to eliminate a number of “special favors” in tax code to broaden the tax base.
According to long-time Newburyport retailer Ed Gronbeck, who with his wife, Diane, own Market Square’s Brass Lyon, any lowering of the sales tax is a good thing.
“We’d be happy to see the sales tax go down to 4.5 percent,” Gronbeck said. “We compete with stores across the border, and I think this could make a difference. Sales tax, for some people, is an issue.”
Salisbury retailer, Tim Lamprey, of Bridge Road’s Harbor Gardens, said he watched Patrick’s speech, and his impression is one of caution. Although lowering the sales tax would be welcome, Lamprey’s keeping a “wait and see” attitude to see how everything else shakes out.
On one hand, he said, lowering of the sales tax may help border community retailers by keeping shoppers in Massachusetts.
“With how much it costs in gas to drive to New Hampshire,” Lamprey said, “some people who shop there now may stay in state because saving 4.5 percent isn’t worth how much they’ll pay for gas.
In addition, Patrick’s promise to spend the additional tax revenue on education and transportation doesn’t hold a lot of water with Lamprey.
“I’m very leery of dedicated revenue,” Lamprey said. “It’s usually dedicated only long enough for people to forget about where it’s supposed to go. Then it goes somewhere else.”
Senate Minority Leader Bruce Tarr, R-Gloucester, who represents Newbury, Rowley, West Newbury, Georgetown and Groveland, called Patrick’s plan a dramatic increase in the tax burden on state citizens, as well as state spending.
Although transportation and education are important priorities, Tarr said, increasing revenues through an income tax increase has to be taken n context with people still trying to fight their way back from the recession, a state budget wrestling with a $540 million gap, too many unemployed and underemployed residents, and the negative impact of the recent increase in federal payroll taxes that has taken a significant bite out of weekly salaries.
Patrick is not seeking re-election when his term ends in 2014, and as a result, may not not reap the political fallout that could come should the Legislature pass his proposed tax increases and spending plans.
“I heard the governor say at lot (in his State of the State address) about his legacy,” Tarr said. “Maybe he’s asking the taxpayers to pay $1.9 billion to secure that legacy for him.”
As for the decrease in sales tax, Tarr is all for it, having worked to lower it for years. But he believes Patrick’s offer is disingenuous.
“I do believe lowering the sales tax will have a good impact on our retailers,” Tarr said. “But I don’t think lowering the sales tax should be part of a shell game that would result in an increase in taxes overall for our citizens.”
Tarr believes Patrick has a basic flaw in his reasoning when it comes the how best to use the $1.9 billion in proposed tax increases to generate economic growth.
“The governor believes that $1.9 billion will stimulate growth best if spent by the government,” Tarr said. “I think it would be more effective if it spent by taxpayers.”
State Reps. Michael Costello, D-Newburyport, and Lenny Mirra, R-West Newbury, were called for comment, but did not respond.
According to Salisbury Chamber of Commerce Board Chairman Chuck Takesian, the decrease in sales tax will definitely help his members, but the increase in income tax that comes along with it would negate possible gains businesses would see in local spending. If people’s income tax goes up 1 percent, they’ll have less discretionary income to spend, he said. The sales tax should drop, period, he said.
“I’ve always thought the sales tax should go back down to 3 percent, the way it was when (Governor) Volpe proposed it in 1962 as a temporary tax,” Takesian said. “I remember at the time, my mother said: ‘There’s no such thing as a temporary tax.’ Boy, was she right.”
The State House News Service contributed to this article.