Tuesday, April 28, 2009

SalesTax; between a rock and a hard place

So the Massachusetts House of Representatives has just passed an apparently veto-proof increase in our sales tax, from 5% to 6.25. It's not law yet, but certainly seems to have smooth sailing ahead. See today's Boston Globe.

Taxes are one of those issues where our personal needs and desires are often different from what we know is good for the state and the country. I look at the difference between my gross and take-home pay and am not happy. Yet I know states have to have revenue in order to fund local aid to cities and towns and services such as the Department of Public Health and the State Police, at a time when revenue is down-- people are buying less, and fewer people have jobs. So what's fair?

Sales tax is a flat rate tax-- the rate remains the same whether you are buying a car or a set of dishes. But sales taxes are more burdensome on middle and low-income people than on those who have higher incomes, because, while the tax rate is the same, upper income people have far more disposable income.

Income tax is generally considered a progressive tax-- that is, if you have more, you pay more. Local property taxes are also considered progressive but are often considered unfair because of the disparities in the evaluation process from city to city.

My personal least favorite tax is the one not considered a tax at all, and that's increasing state (and local) fees for Registry of Motor Vehicle Services, fishing and hunting licenses, etc. Former Massachusetts Governor Mitt Romney was a master of the hidden tax.

How does Massachusetts compare to other states in terms of sales and income tax? Not the worst, but not great either. If sales tax goes to 6.25%, only twelve other states will have a sales tax equal to or higher than we will. Federation of Tax Administrators.

We fare better with our 5.3% income tax. While 8 states have no income tax at all, 23 states charge at least some of their residents (at the upper end) more in income tax than Massachusetts.

Then there's the gas tax. Everyone who has a car lived through last year's $4+ a gallon last year, and it wasn't easy. You can read a pro-gas tax editorial here.

Massachusetts has a $3.5 billion budget gap. Which tax or combination thereof is likely to solve our budget problems? A one percent sales tax increase will raise $750 million. A one percent income tax increase will raise about $1.2 billion. Then there's alcohol/cigarette taxes. But I can guarantee you there will be no income tax increase this year, because next year is an election year for our representatives and senators.

By the way, our federal income tax is the third lowest in the world!-- probably a surprise to most people. From MoneyCentral:

Tax burdens around the world
CountrySingle, no kidsMarried, 2 kidsCountrySingle, no kidsMarried, 2 kids
Czech Republic43.8%27.1%New Zealand20.5%14.5%
Germany51.8%35.7%Slovak Republic38.3%23.2%
Italy45.4%35.2%United Kingdom33.5%27.1%
Japan27.7%24.9%United States29.1%11.9%
Source: OECD, 2005 data

So what do YOU think?

No comments: