House State Budget Wrap-up (revenues)

Friday brought the end to budget deliberations in the House. The House of representative passed a $906 million increase in the sales tax in Massachusetts. That raised the tax from 5% to 6.25%. We kept the exemptions the same, so food (except for meals tax) and clothes under $1175.00 are exempt as are many other goods and services. Any tax increase is a tough vote. I think that many members were cognizant of the fact that we have had a sharp increase in unemployment over the past six months and we know that many people are worried about their finances. However, the nature of government is that demand for our services is countercyclical with revenues and we need to try to meet demands as much as possible. Our budget, due to the global recession and falling state revenues was $532 million less than the Governor’s budget and we needed to backfill revenues to meet demand. The tax increase allowed us to cover close to $300 million in transportation costs, commit almost $300 million to increasing local aid, and cover some programs that weren’t covered in the budget originally. I think that this was worth it.

The inclusion of the sales tax increase in the budget caused quite a firestorm with the Governor. He sent a letter to house members stating that he wasn’t happy with a broad based tax in the budget and later said he would veto the sales tax if it hit his desk. He later said that he wanted reform before revenues, and even later, said he wasn’t against the sales tax, but wanted to get his package in place instead. All of this leads one to wonder where the Governor will be when the budget is placed before him. At any rate, it was important that we passed a budget and send it to the Senate as they need to get to work on it. Budgets are snapshots in time and our “snapshot” on revenues is based on consensus revenue figures available at the start of the House budget process. We know that the figure we will end up with is much less, and both the Senate and conference committee will need time to process this. One could ask why we didn’t downgrade our revenue figures if we knew that revenues were dropping. Good question. Budgets are snapshots and if we downgraded or upgraded revenues based on the data available when we were deliberating, it would change every day. The same is true of line items. The needs change every day and if we reacted to this, we could never get a budget done. So we did our budget in order to keep the process going and we will work out revenues available with the best information available during budget deliberations as well as during the conference. The Governor also has the power to make corrections by vetoing or amending the budget as well as limiting the amount in the budget during the year by using his power to withhold funds in order to keep the budget balanced. This is a constitutional requirement in Massachusetts as well as most other states.

As for revenues, the final decision to vote for the increase was an easy one, although as readers of this blog (my daughter, Greg Roach and Clark Billings!) know, it was not my first choice. I felt that if the average person was going to be hit with $144/yr in order to increase the sales tax by $906 million/yr, then we should have raised the income tax to 5.8% 9or an average of $150.00/yr/average person)in order to raise $1.2 billion. In other words, for a burden of an extra $6.00/yr, we could have raised an additional $300 million. However, as the Speaker correctly pointed out, “politics is the art of the possible”, and the votes for the income tax were not present in the House. So we went with the sales tax in order to bring more money primarily to cities and towns as well as fund some of the transportation budget gap.

The other reason that this was easier for me was that it replaced the Governor’s proposals to increase a tax on “sugar” foods and a gas tax increase. While the Governor decried the use of a broad based tax to balance our budget, his gas tax would have cost the average taxpayer in my district about double the burden of an increased gas tax. I am not sure why the Governor does not consider this a broad based tax. Given this choice between the gas and other taxes, or a sales tax, the choice was easy.

Finally, the gas tax would have been used in the Boston area disproportionately while the sales tax will be collected more heavily in the Boston area, so again, this was an easy choice.