Massachusetts voters in November could face a ballot initiative to reduce the sales tax to 3% from 6.25%, a change that would slash collections by $2.5 billion in fiscal 2012.
Nearly $4 billion of Massachusetts School Building Authority debt and $3.4 billion of Massachusetts Bay Transportation Authority bonds are secured by a dedicated 20% of collections under the sales tax when it was 5%. Lawmakers last year increased the sales tax to 6.25% from 5% to help pay down bonds used to finance the Central Artery project, known as the Big Dig, and help the MBTA balanced its operating budget.
If the Center for Small Government, the group seeking to lower the sales tax to 3%, gathers 11,099 signatures from certified voters by June 23, the question would make it to the ballot.
Carla Howell heads the organization. She expressed confidence that her group will collect the required number and aims to get 19,000 signatures to ensure the initiative reaches the ballot. “It definitely takes work, but this is now our sixth statewide signature drive and we’ve succeeded every time with a good cushion,” Howell said.
In 2008, the organization was able to collect enough signatures for a measure to eliminate the state’s income tax. Voters rejected that initiative 70% to 30%.
The push to reduce Massachusetts’ sales tax to 3% is not as drastic as ending the income tax, which would have cost the state $12 billion annually. That could make reducing the sales tax more acceptable to voters than the proposal to terminate an entire revenue stream.
Residents are also dealing with the recession and Massachusetts’ 9.3% unemployment rate, and may welcome a lower sales tax.
In addition, Bay State voters in January selected a Republican candidate, Scott Brown, to take over the late Edward Kennedy’s Senate seat, showing support for a candidate who advocated fewer taxes and less government spending.
“The Scott Brown phenomenon showed that the voters want to send a message,” said Michael Widmer, president of the Massachusetts Taxpayers Foundation, a nonpartisan fiscal research group. “Now whether they choose to send a message through the sales tax ballot question, I don’t know. But it’s very a volatile and angry electorate. That could change in the next six months as the economy improves a little, but I don’t think it will change dramatically.”
In 2008, labor unions and other groups joined together in a campaign to educate the public on the impact of eliminating the income tax and to urge voters to reject the proposal. Such a movement could come together again.
Another potential ballot question proposes to end the sales tax on alcohol. Last year, lawmakers approved a bill to eliminate the sales tax exemption on beer, wine, and hard alcohol. If the anti-alcohol tax measure passed, the state would collect $110 million less in revenue in fiscal 2012, according to the governor’s Office of Administration and Finance.
The two initiatives combined would cost the state nearly $1 billion in fiscal 2011, which begins July 1, and $2.61 billion in fiscal 2012.
The MSBA and the MBTA will receive $644 million and $767 million, respectively, in fiscal 2011, from their portion of sales tax receipts, according to the finance office. The state must allocate to the MBTA a minimum of $767 million in the event that sales-tax revenues are underperforming.
In addition, the sales tax increase last year to help pay for the Big Dig requires the state allocate each year for 30 years $100 million of “contract assistance” to the Massachusetts Department of Transportation. The money helps pay down outstanding subordinate Metropolitan Highway System bonds. The increase also generated $160 million to help MBTA balance its fiscal 2010 budget. The state’s fiscal 2011 budget proposal includes another $160 million allocation to the MBTA.
The state also provides $25 million annually in contract assistance for MHS senior bonds.