In a desperate search for money to fill the holes in the state budget, Massachusetts lawmakers are looking for new ways to tax. Among the proposals floated in a recent subcommittee hearing was expanding the state sales tax to include services.
That's a bad idea that Massachusetts taxpayers have had to beat down once before. If the tax-and-spenders on Beacon Hill have their way, we'll have to do it again.
In Massachusetts, the sales tax applies to goods sold. Services, such as haircuts or having one's taxes prepared by an accountant, are exempt.
Now legislators are poring over the list of tax exemptions in search of those they can eliminate. They're getting desperate as the state's revenues continue to fall short of projections. Just a few months into the 2010 fiscal year, lawmakers are already looking at a budget shortfall of $600 million.
The exemption from the sales tax for services saves taxpayers $6 billion a year.
Of course, legislators lined up a panel of experts at a recent hearing to tell them what they wanted to hear.
"I think it's crazy," said Karl Case, a Wellesley College economics professor, of the exemption according to the State House News Service. "What's the difference between a good and service today? I never quite understood why it's there."
Well, for the professor's edification, here's one difference: A retailer's success depends on good roads, highways, supply networks and a ready workforce. A sales-tax hike is painful and may cost the retailer some customers. But it is somewhat difficult and costly to close up shop and move away.
But what difference does it make to an accountant whether he or she opens an office in Salem, Mass. or Salem, N.H.? None at all. If lawmakers decide to tax services they may as well call the bill the second phase of the "New Hampshire Stimulus Act." The recent sales-tax hike was the first.
Legislators tried this once before. In the early 1990s, former state Sen. Patricia McGovern, D-Lawrence, led the drive for a tax on services. Billed as a tax on "the rich," lawmakers soon realized the levy would apply to nearly all services used by rich and poor alike. They repealed the measure shortly after it took effect.
The Legislature's dream of millions from the increased sales tax has been a nightmare. Since the tax was hiked to 6.25 percent this summer, sales tax revenues have actually fallen. In September, sales tax revenues were $37 million below expectations.
Don't let legislators make the same mistake with services and drive our economy into an even deeper hole.
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