BOSTON — With a post-pandemic bounce in state revenues, Gov. Charlie Baker is proposing a first-ever, two-month reprieve from the state’s sales tax, but the plan is being criticized by some as a “billion-dollar giveaway.”
On Wednesday, Baker filed legislation to make August and September tax-free holidays, proposing to dramatically expand what is normally just a two-day break from the 6.25% state sales tax. The Republican plans to tap surplus revenues that have come in nearly $4 billion over projections.
Baker said the move will boost taxpayers and Main Street merchants still struggling to overcome effects of the pandemic.
“Massachusetts’ economic recovery is off to a good start, but it’s crucial that the commonwealth takes action now to spur more economic activity in communities and support taxpayers,” he said.
Baker said tax revenues for the current fiscal year have exceeded expectations, with a 14.9% or $3.9 billion increase over the year-to-date estimates. The two-month tax break would cost the state about $900 million, according to the Baker administration.
Business groups, who were caught off-guard by Baker’s proposal, said the move would help merchants.
Jon Hurst, president of the Retailers of Massachusetts Association, called the plan “a smart, exciting and progressive economic incentive that will benefit our small businesses and our consumers just when they need it.”
But critics are panning the proposal as a gimmick, saying it will drain more than $900 million that could go toward public transit, crumbling roads and bridges, public schools or other pressing needs.
The Massachusetts Teachers Association and state chapter of the American Federation of Teachers, which represent the state’s educators, issued a joint statement criticizing Baker’s plan as a “billion-dollar giveaway” that will only “boost the profits of large, out-of-state, big-box stores and online retailers.”
“We must ensure that our public schools and colleges have the resources to support students after a historic year of disruption and invest in our transportation systems to keep congestion from returning,” the statement said. “With so many facing incredible hardship, Baker’s billion-dollar giveaway is the wrong move.”
Ultimately, the decision will be with the Democratic-controlled Legislature, which is required under a 2018 law to set the sales tax holiday. Lawmakers have already approved a request from Baker to make Aug. 14-15 this year’s holiday.
Main Street retailers view tax holidays as a chance to lure shoppers during a slow season and level the playing field with Amazon and other online merchants.
Not everything is tax-free. The holiday won’t apply to big-ticket items such as cars and boats, or single items costing more than $2,500. Nor would it include taxes on energy bills, restaurant meals, tobacco or marijuana products.
The reprieve is especially important for communities along the New Hampshire border that compete year-round with stores in the tax-free Granite State. That’s one of the reasons Rep. Frank Moran, D-Lawrence, says he supports Baker’s plan.
“I think it’s a great idea,” he said. “There’s a lot of businesses in my communities that are still struggling and would benefit from this. I support it 100%.”
Rep. Brad Hill, R-Ipswich, also thinks the move could help buoy struggling business owners and says the state has enough surplus money to cover the losses to its tax coffers.
“For those who are arguing those dollars could be spent elsewhere, if we lose more businesses we’re not going to get any revenue in the future,” Hill said.
Retailers say the Massachusetts sales tax puts them at a competitive disadvantage. It’s third-highest in New England, behind Rhode Island’s 7% and Connecticut’s 6.35%.
Rep. Paul Tucker, D-Salem, said he also wants to help struggling retailers but needs to be sure the revenue lost by the state will actually benefit them.
He said the state also needs to be cautious about spending money.
“People might say that we’re flush with money right now, but a lot of it is one-time revenues,” he said. “We still need to be careful about our spending.”
Tax watchdogs are skeptical of the impact of tax-free holidays. Some critics argue that the reprieves subsidize businesses at the expense of limited state funding for other programs.
But David Tuerck, president of the right-leaning Beacon Hill Institute, is among economists who think that the state needs to take more steps like an extended tax break to stimulate spending and speed the post-pandemic recovery.
“The state is awash in tax revenue right now, and they really need to stimulate retail sales,” Tuerck said. “It’s not something I’d want them to do every year, but I think it is totally in order at this moment, and hope it goes through.”
Christian M. Wade covers the Massachusetts Statehouse for The Eagle-Tribune and its sister newspapers and websites. Email him at cwade@cnhinews.com.
The Link LonkJune 26, 2021 at 05:00PM
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