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

Country Single, no kids Married, 2 kids Country Single, no kids Married, 2 kids Australia 28.3% 16.0% Korea 17.3% 16.2% Austria 47.4% 35.5% Luxembourg 35.3% 12.2% Belgium 55.4% 40.3% Mexico 18.2% 18.2% Canada 31.6% 21.5% Netherlands 38.6% 29.1% Czech Republic 43.8% 27.1% New Zealand 20.5% 14.5% Denmark 41.4% 29.6% Norway 37.3% 29.6% Finland 44.6% 38.4% Poland 43.6% 42.1% France 50.1% 41.7% Portugal 36.2% 26.6% Germany 51.8% 35.7% Slovak Republic 38.3% 23.2% Greece 38.8% 39.2% Spain 39.0% 33.4% Hungary 50.5% 39.9% Sweden 47.9% 42.4% Iceland 29.0% 11.0% Switzerland 29.5% 18.6% Ireland 25.7% 8.1% Turkey 42.7% 42.7% Italy 45.4% 35.2% United Kingdom 33.5% 27.1% Japan 27.7% 24.9% United States 29.1% 11.9%

Source: OECD, 2005 data

So what do YOU think?