Governor Charlie Baker continued to unveil his new idea for a two-month sales tax vacation this summer on Thursday, even after the $ 900 million tax break proposal landed at a small slap on Beacon Hill, where many Democrats get the short-term tax break planned and supporters expressed skepticism about his chances.
Baker has passed bill proposing to use a portion of the “substantial” surplus expected for the end of fiscal next week on an extended sales tax vacation. The governor’s bill would turn the traditionally two-day, tax-free weekend in August – August 14th and 15th of this year – into a two-month exemption from the state’s 6.25 percent sales tax.
But the idea of suspending VAT collections in August and September to give the retail economy a boost met swift opposition from lawmakers who would have to sign the plan.
“We went on a sales tax vacation weekend and I think that’s enough for the moment. There is a lot of need in the state, ”said Senate President Karen Spilka.
Senate Chair of Ways and Means Michael Rodrigues and Chair of the Economic Development Committee Eric Lesser both called the VAT vacation a “political gimmick,” and other lawmakers enumerated the various ways they hoped to spend excess dollars .
“Whether investing in childcare, emerging labor needs, K-12 education, public health, or families in need, there is no shortage of ways to invest responsibly to support equitable economic recovery, but there is a short-term political gimmick is not one of them, ”said Rodrigues.
With Baker recommending August-September tax vacation, legislative leaders will have to decide in the coming weeks whether the proposal is on its feet. If they do not accept it, House and Senate Democrats could choose to shorten the duration or, as House minority leader Brad Jones put it, “die a death of inaction”.
Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts, also questioned the wisdom of injecting more capital into an economy that is already showing signs of overheating.
“In addition to the political questions, there is also the economic question: is now the right time for this impulse? I think the consensus probably isn’t. We’re running a very hot economy right now, ”said Horowitz.
Horowitz pointed out the inflated prices of goods like wood, supply chain restrictions for microchips and the difficulties many companies have in recruiting workers.
“The injection of incentives this summer makes all of these problems worse. It means giving people money to spend when high spending is actually an economic concern, not a virtue, ”he said.
Baker has described his proposal not only as a way to help small, local businesses recover from the month-long restrictions imposed during the COVID-19 pandemic, but also as a way to say thank you to consumers, who continued to spend money and add to the surplus.
The state ended May at $ 3.9 billion more than it expected in the first 11 months of the fiscal year, and in mid-June, the Treasury Department reported that the Treasury Department raised 80 percent of its expectations for the full month.
Baker said the unexpected strength of tax levies, including capital gains taxes, pushed the state’s reserved balance to more than $ 4.3 billion
“I think we owe some of this to the people of Massachusetts and some small businesses. You’ve had a terrible year, ”Baker said Thursday in an interview with GBH’s Boston Public Radio.
When asked if he would consider limiting the tax break to purchases from small, local vendors, Baker said, “Well, that’s an interesting idea. I am definitely looking forward to talking to the legislator about it. “
Retail corporations were among those who cheered Baker’s proposal.
Jon Hurst, president of the Retailers Association of Massachusetts, called the proposal “a smart, exciting, and progressive business incentive that our small businesses and consumers get when they need it.”
The Massachusetts Fiscal Alliance also opposed the idea that it should be viewed as a gimmick to allow people to keep more of the money they make.
“Massachusetts has more tax dollars than they ever dreamed of, and Massachusetts taxpayers are some of the most generous in the country. State House politicians should share some of the wealth with taxpayers and not keep it all to themselves to be selfish and reckless to spend, ”said MassFiscal spokesman Paul Craney.
But if anything, few proponents seemed optimistic about the bill’s chances.
Jones said the GOP members of the House of Representatives with whom he spoke about the governor’s proposal were “very receptive” but he was skeptical that Democratic leaders would allow the bill to be put to the vote.
“I would definitely vote for it. I just honestly don’t expect it to come to the vote and I don’t know if we have a chance to offer it, ”said Jones.
The Reading Republican called the proposal a “sensible way” to get taxpayer credit and said it should help small local businesses even if some consumers choose to shop in “big box” stores.
“Maybe someone who’s been in quarantine and burned their TV on Netflix will buy a TV,” Jones said.
Marie-Frances Rivera, president of the Massachusetts Budget and Policy Center, said it “makes sense” to move the tax system away from a 6.25 percent sales tax “which falls most heavily on low-income households.” However, she added, “Unfortunately, using the surplus in this way precludes the possibility of making investments that will transform the opportunities for everyone in our Commonwealth – especially our low-income and BIPOC communities.”
Rivera said the money could instead be used to expedite the state’s seven-year funding plan for the Student Opportunities Act, cut childcare costs, or allow regional transportation authorities to abolish bus fares.
Massachusetts Teachers Association President Merrie Najimy also said the surplus could be better invested in schools and transportation rather than a plan that, in her opinion, “would capture the profits of large, out-of-state big box stores and online Dealer would increase ”.
Baker, Jones, and other proponents of the extended tax vacation noted that the tax break would come at a time when the government was not just running a surplus but lawmakers were discussing how to spend more than $ 5 billion on the COVID- 19 Federal Aid and Cities Can Spend, cities and schools received billions more through the American Rescue Plan Act.
The governor last week proposed spending $ 2.8 billion in bailout funds to boost the local economy, but the House and Senate rejected that plan and gave him a bill to put ARPA aid into a fund for the time being to deposit.
Horowitz said a better plan for the surplus could be to either target the funds closely to those populations struggling the most during the pandemic, or to give them credit programs and agencies like MassDevelopment, which will deploy the resources over many Years.
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