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Editorial: Mass. boosts sales tax

01:00 AM EDT on Sunday, July 5, 2009

Massachusetts might not become “Taxachusetts” again but the recession has taken its toll. The biggest impact: The state will raise its sales tax to 6.25 percent from 5 percent on Aug 1. Further, the new budget law will let municipalities add 0.75 percentage point to the tax to help pay for local services, raising it to a maximum of 7 percent. They’ll also be allowed to impose a 2-percent lodging tax, which would presumably fall disproportionately on out-of-staters.

And there were indications last week the Governor Patrick might again seek to boost the state gasoline tax to help fix the commonwealth’s troubled transportation system.

Interestingly, localities in Massachusetts generally seem to prefer to keep their current services rather than cut them to curb their the property taxes. There appear to be few signs of a tax revolt, local or statewide. Another reason is that Massachusetts remains a very affluent state. Morale is not as low as in, well, the Ocean State. And many, perhaps most, states are raising taxes. (Maine is a big exception.)

While Rhode Island’s sales tax is 7 percent, it covers fewer things than does Massachusetts’s. And Connecticut’s sales tax is 5 percent but levied on more goods and services than is Rhode Island’s.

So the net effect is that Massachusetts will have a higher sales tax than the Ocean State. It’s too early to say how much this will alter the competition between the states for shopping. We’d guess not much at all. Why waste gasoline money to drive to some place to save a few dollars? And in some other taxes, most notably the income tax, Massachusetts remains “more competitive” than Rhode Island.

In any event, given southern New England’s small size, it would make more sense if Massachusetts, Connecticut and Rhode Island coordinated their tax policies over time instead of trying to compete with each other in a sort of economic cannibalization.

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