Massachusetts voters in November have the option to slash the state’s sales tax rate to 3% from 6.25%.
The secretary of the commonwealth placed the initiative on the ballot last week after receiving sufficient signatures. Ballot question number three would reduce the rate to 3% on Jan. 1, cutting sales tax receipts by $958 million in fiscal 2011, which began July 1, and $2.5 billion in fiscal 2012, according to the Executive Office of Administration and Finance.
The 2010 general election is Nov. 2.
A rollback would affect approximately $7.4 billion of bonds secured by sales tax revenue.
The Center for Small Government, which is seeking the sales tax rollback, promotes less government spending and taxation. Carla Howell, head of the center, indicated that the current recession and widespread frustration with government waste have generated enough support to ensure passage of the rollback.
“People are really feeling that the private sector is hurting badly, and the government sector is continuing to spend more money and continuing to spend beyond its means,” she said. There is “a growing awareness of government waste, exorbitant government employee pensions, and high unemployment.”
Lawmakers increased the sales tax rate to 6.25% from 5% last summer. Roughly $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 from the 5% tax, or one cent for every five cents collected. The additional 1.25 percentage points allows the state to direct an annual $100 million of “contract assistance” to the Massachusetts Department of Transportation for 30 years.
The money helps to pay down bonds used to finance the Central Artery project, known as the Big Dig. The 1.25 percentage point boost also supports $160 million of aid the state allocated to the MBTA in fiscal 2010 and fiscal 2011 to help the mass transit agency balance its operating budget.
Howell said a 3% sales tax levy would still support repayment of bonds dependent upon sales tax receipts for repayment.
“If you take all the bonds, they total about 2.5 [percentage points] out of the 6.25%,” Howell said. “So it’s well within the revenue that would still be coming in if this passes.”
The Center for Small Government’s prior tax-reduction referendums involved the state’s income tax. Massachusetts voters rejected a push to eliminate the income tax in 2008 — which would have cost the state more than $12 billion annually in reduced revenue — by a 70% to 30% margin.
A Suffolk University/7 News poll suggests the sales tax rate has less support now. The May 25 poll found that 49% of those interviewed favored rolling the sales tax to 3% while 44% opposed the initiative.
Massachusetts would lose a combined $3.5 billion the first two years after a rollback.
“It would be extremely challenging for them to deal with a revenue loss of that magnitude,” said Fitch Ratings analyst Laura Porter. “And we have incorporated into their rating a strong record of financial management. So from a rating perspective, we would be looking to see how they would react to that.”
Fitch rates the Bay State AA-plus. Moody’s Investors Service and Standard & Poor’s rate it Aa1 and AA, respectively.
Administration and Finance spokeswoman Cyndi Roy said it was premature to comment on the issue prior to the actual vote.
Also on the ballot is a push to eliminate the sales tax on alcoholic beverages. The state anticipates collecting $110 million of sales tax receipts in fiscal 2011 from the sale of beer, wine, and hard alcohol. The initiative is ballot question number one.
The sales tax levy on alcoholic beverages is new. Lawmakers last year opted to end its sales tax exemption to raise more revenue for the state.