Now the House is batting about a 7% state sales tax, according to the Globe.
In my last entry, I stated that the sales tax is a tax of least resistance. Here is a more in depth reason why it is, and why I prefer it over all other taxes.
You can avoid paying gas taxes by taking public transportation. Having ridden the T for over 25 years, I can tell you that taking the T can be pretty convenient. If you work in Downtown Boston, the trip from Hyde Park to South Station is about 14 minutes. The travel time via car is 35 minutes. If I-95 had been built through Hyde Park, the trip to Downtown Boston would take about 7 minutes total - a 50% reduction in time.
I commute to Watertown, which from Hyde Park is a 15 mile journey. I now have to factor in a commuter rail ride, a Red Line ride, and a trackless trolley ride. The best time I have commuted from Hyde Park to Watertown is 42 minutes. With MBTA delays, crowded buses, traffic and the like, my commute ranges from 1 hour to 1-1/2 hours, all for that 15 miles.
By car, the distance is about 10 miles, and the travel time is about 25-30 minutes. On a 20 mile per gallon gas tank and gas at $2.00 per gallon, my one-way cost is $1.00. If the gas tax is hiked 20 cents, my cost goes up to $1.10. If I paid everything with cash - no CharlieCard discount - my cost would be $7.75 one way, based on a $4.25 commuter rail fare, $2.00 subway fare, and a $1.50 bus ride. So to avoid a 19-25 cent per gallon gas tax, instead of paying $2-2.20 a day, I would now be forking over at least $10 a day just to make that 15 mile journey, up to $15.50.
The per-day costs do go down considerably if you do buy a monthly pass. For example, a $59 LinkPass would cost you $2.95 for each of the 20 days you use it, or $2 a day if you use it all 30 days - a savings of $3 a day. A $135 Zone 1 pass would cost $6.75 a day per 20 days or $4.50 for 30 days. For the most expensive pass - Zone 8 at $250 - 20 days would be $12.50 a day and 30 days would be $8.33 a day.
The basic point is this: for all that effort to "get cars off the road" due to a hike in the gas tax, people will now pay much more to ride the T to avoid the gas tax if they pay cash and don't have a monthly pass. That means people who can't afford a monthly pass - read: the poor - will end up paying more to ride the T - sending them to their cars for a cheaper, quicker ride. For all that effort to get cars off the road due to a higher gas tax, more people will avoid taking the T because it is prohibitively expensive because they can't afford the passes, and end up driving anyway. Pretty much a zero sum game.
The sales tax, however, cannot be avoided. Everyone - rich, poor, middle class - cannot wriggle out of paying a sales tax at the cash register, and only under certain circumstances, such as food and clothing. A person paying $200 for an iPod pays $10 in sales tax now. If the 7% sales tax goes through, they will now pay $14 in tax - an extra $4 or 40%. If you buy a laptop for $1,000, you would pay $50 now, but $70 if the tax passes. You can still head to New Hampshire and buy your goodies tax-free, but if you're planning to eat at the food court, New Hampshire has an 8% "prepared meals" tax, which carries a 60% premium over our current meals tax of 5%.
A higher sales tax also takes money from people who pay very little in income taxes - either those who don't earn enough and get tax credits, or those who participate in dubious activities and have their monies set up to avoid a huge tax bite - like offshore bank accounts, money paid "under the table" and the like. If you can buy a $60,000 Corvette on your gains - illicit or not - you can fork over $4,200 in sales tax to the state. If you can buy a $3 million home in a gated community, there's no reason to shell out $21,000 to the Commonwealth.
There are a lot of people who think they are entitled to everything without paying a single penny, or that the state can vacuum all the money out of our pockets through nuisance taxes. If the state is absolutely serious about getting money into our coffers to remain solvent and to avoid cuts in service, it has to take that risk of angering the public. The public must participate one way or another - either by begrudgingly paying more in sales tax, or flipping the switch for the opponent of those who voted for the sales tax, gas tax, or any type of tax.
The passive-aggressive approach hasn't and won't work.
Showing posts with label sales tax. Show all posts
Showing posts with label sales tax. Show all posts
4/18/2009
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.
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.
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