The tax of least resistance

The Boston Herald proffers the 1 cent hike in the sales tax, which is gaining a much closer by look by the Legislature than all the seizure and social engineering taxes that are being bandied about, will kill the economy, "hit the poor where they can least afford it" (when people say that, it reminds me of those noisemakers little kids wing around their heads, and it sounds just as obnoxious), and send our Commonwealth into a death spiral.

This is one instance where I strongly disagree with the Herald from its editorial point of view.

Of all the taxes we pay, a sales tax is the tax of least resistance. You don't need to fill out forms and send them in by April 15. It shows up on your receipt when you pay for things. With the exception of New Hampshire, our sales tax at 5% is lower than Rhode Island's 7%, Connecticut and Vermont's 6%, and is at par with Maine's at 5%.

I believe, though, that a 6% tax the Commonwealth is proposing is not enough. If you really want to bring in the big money - even at hue and cry of critics - the sales tax and the income tax should be combined into a state sales tax of 12.5% - our current 5% sales tax, plus current income tax of 5.3%, plus an extra 2.2%. We will succeed California in having the have the highest sales tax in the nation, but we will also join the ranks of states with no income tax - like New Hampshire. The state income tax would then be eliminated - so in effect, it'll be a victory - if late and backdoor - for Question 1 if the 12.5% sales tax ever came to effect.

Critics, like the Boston Herald and community groups, will complain that the state sales tax hike will hurt the poor the most, as it's a regressive tax, and that this sales tax hike will kill business, introduce layoffs, and accelerate middle class flight. It will also prove a goldmine to New Hampshire, who has no state sales tax or income tax.

With the new sales tax of 12.5% and the subsequent elimination of the income tax, the monies taken out on every paycheck in MA income tax weekly or biweekly will actually give people extra money to spend or invest. People can take that money and put it into their 401(k)'s if they like, but the tradeoff is that when they buy something, they will pay those taxes at the cash register, daily and automatically. Massachusetts will become more attractive to business and production and attract more workers as there is no income tax to consider. There will still be exemptions for food and clothing - including snacks and beverages.

The amount of money brought in If a 6% sales tax brings in an extra $750 million a year, a 12.5% sales tax will bring in $5.625 billion - a healthy amount of money. The 12.5% tax can help retire the MBTA's long-standing debt and breathe new life into the system, bringing it out of its urban decay and into the 21st century.

Everyone praises New Hampshire for having no sales and income tax, but they are not completely tax-free. New Hampshire has an 8% prepared foods and meals tax. Consider that when you save $10 on a $200 iPod, buying a $10 meal at the food court will cost you 80 cents in tax in New Hampshire versus 50 cents here - a 60% difference! Property taxes in New Hampshire are also high, second only to New Jersey as the highest in the nation. So while people would high-tail it to get their sales tax free goods, eating and living there is just as cost-prohibitive.

Massachusetts has proven itself to be an innovator in many things, so why not put this consumption tax to the test? Like same-sex marriage and mandatory health care, Massachusetts has become a place where "what ifs" that were never thought about came true, even though they are imperfect. Again, the 12.5% sales tax will be high and there will be a lot of complaints from many people. This new, all-inclusive sales tax can be an experiment for other states to see if a consumption tax really works, and if it does, set aside their income taxes. If it doesn't bring in the money it's intended to bring in, then the income tax can return at its old rate.

I admit I hate paying taxes, especially high ones. Personally, I can deal with a 6% sales tax. It is a hike of 100 basis points (a basis point is 1 hundredth of one percent), or (as the Herald correctly puts it) 20% more than the 5% sales tax we pay now, doing so at the cash register will be much easier than shoving down severe cuts in MBTA service and the 19 cent gas tax down people's throats.

A side note: Since the Lottery is a voluntary tax, what should also happen is that the Commonwealth should drop Lottery payouts from 69-85% - the most generous return to players in the nation - to a uniform 50-55% payout on all tickets. (This can easily be done by reducing the money pool to pay high-tier winning tickets without changing the money pool of low tier tickets. A better explanation of what I'm taking about is that is here.) Lottery players will cry, "they took out all the big winners!" but it will save the state a lot of money that can be used for other programs. Also, cutting down the grand prizes will also help - it's nice to pay $10 for the privilege of winning $2.5-$5 million, but many other states have prizes for $100,000-$250,000 for the same privilege - and it's paid out all at once.