To tax or not to tax: Locals split on proposed hikes

LYNN – Bob Kafka is fed up with the rising price of cigarettes and would just as soon see the state hike the sales tax a penny or two to solve its budget problems.Barry Emerson disagrees and thinks it’s time for state government to cut spending.”There’s always a lot of that that can be done in a bureaucracy,” he said Friday.On Beacon Hill, Massachusetts House Speaker Robert DeLeo has said he is open-minded about a sales tax hike, but Gov. Deval Patrick has been reluctant to embrace such an increase.State lawmakers have bandied about proposals to hike the state sales tax to 7 percent, increase the gas tax as much as 29 cents (about $26 million is generated with every penny increase), increase the income tax by a percentage point, tax junk food and alcohol and give cities and towns the option to raise the sales tax on meals and hotels by up to 3 percentage points.Budget issues and tax amendments were discussed Friday morning, when DeLeo met in his office with members of his leadership team, followed by a meeting with committee chairmen.Call it the $8 billion conversation.That’s the size of the tax take Rep. Peter Kocot says the state could haul in should it expand the reach of the sales tax to cover hundreds of services state residents and businesses rely on every day – from haircuts and landscaping to legal services.Kocot proposed the expansion as an amendment to the 2010 House budget, slated for debate next week. He hopes the proposal will start a discussion on the various exemptions that tamp down the state’s revenue collections in a year where the economy is suffering and middle class families are having a tough time making ends meet.The proposals are likely to arise Monday, when the House takes up 60 amendments that would collectively raise the state’s revenue collection by billions.Economists estimate that adding a penny to the sales tax would bring in $750 million a year – under current definitions of what is taxable – and adding a tenth of one point to the income tax would boost the state’s revenue by $200 million.When lawmakers passed – and then-Gov. Michael Dukakis signed – a bill eliminating the sales tax on services in 1990, it was met with public outcry. In particular, legal advocates at the Massachusetts Bar Association and the Boston Bar Association fought to overturn it in court.When Gov. William Weld took office in 1991, he led a successful effort to repeal the new tax, riding a wave of support and relying on a Senate with 16 Republican members, enough to sustain his veto. The new tax never took effect.Stephen Kidder, who headed the Department of Revenue in the Dukakis administration, said the effort to tax services was part of a fundamental rethinking of the state’s tax base.”The logic to it, of course, was that our economy had shifted over time from an economy based on manufacture of widgets to delivery of services,” he said. “When the department went through the process of developing regulations, it became clear how complicated the process would be. You look at technical questions like where are services performed, who’s performing them, what services are performed in Massachusetts, what services are performed elsewhere. It became clear the challenge of trying to identify, in an Internet world, where services are performed.”In a letter to lawmakers Thursday, Associated Industries of Massachusetts executive vice president John Regan called on House members to defeat 16 amendments that would raise the state sales tax as high as 7 percent, bump up the corporate tax rate to 10.5 percent, add 29 cents to the gasoline tax and lift the state income tax by a full point.John Hurst, who heads the Retailers Association of Massachusetts, charged that a sales tax hike would drive consumers to New Hampshire or online to make purchases.