The Making of the Sales Tax Holiday, 2015

As I count down the days and hours until the August sales tax holiday, when I can save $20 on the four new (tax free!) tires my car needs because of the deplorable condition of our roads, some thoughts on how this year’s holiday came about.

As is typical, the Legislature waited until late July to enact the holiday bill, perhaps deterred by the words of the former Chairman of the Senate Ways and Means Committee, who once described the holiday as perhaps not the finest public policy on the planet. But as is also typical, by late July, retailers have already advertised not only the existence of the holiday but also have hinted broadly about when in August it will occur. And the Legislature does not excel at taking candy from babies.

This year, more legislators in both House and Senate joined the ranks of sales tax holiday skeptics, and this time they also had the Mass. Taxpayers Foundation in their corner (the holiday “is getting increasingly more difficult to justify”). But even as they scored more points than ever in the policy debate, they knew they were outnumbered, despite the fact that many of those supporting the holiday were pretty listless about it  (Senator Marc Pacheco, one of their number, distilled this lethargy into a single sentence: “I will be voting for it reluctantly so that the Senate is not blamed for stopping it”).

The success of the sales tax holiday owes much to the inherent popularity of any law that lowers consumer prices, but not everything. The holiday’s primary lobbyist, according to the Globe, is an “aw shucks, good old boy” who’s very popular on Beacon Hill. The holiday also has think tank support from the (Koch-funded) Beacon Hill Institute. The Institute weighed in with the requisite charts and tables demonstrating the enormous boost the state economy would receive from the holiday, including the rather astounding news that this year’s holiday would generate as many as 860 jobs (note to the Institute: those sound more like “shifts” than jobs”).

And yet another factor: the Massachusetts Fiscal Alliance and their kinfolk at the Independent Expenditure PAC, Jobs First.

You may have heard of Mass. Fiscal during last year’s election season when their “voter education” efforts, which targeted 20 Democratic incumbents in the House of Representatives, came in for some harsh reviews, such as this one by PoliSci Professor Peter Ubertaccio and this one by David Bernstein at Boston Magazine (as well as this one by your author).

Mass. Fiscal’s voter education mailings charged the 20 targeted Democratic incumbents had taken the horrifying position that “illegal immigrants” (their term) should come before veterans on the wait list for state public housing vacancies. The professor and the journalist both concluded that this sort of “ridiculous, incendiary nonsense” purporting to be voter education amounted to an abuse of Mass. Fiscal’s tax-exempt status. As David Bernstein concluded:

If your purpose is to get average voters whipped up against an incumbent, the dozens of real, actual votes they take about various real, actual spending measures won’t be as effective as a vote supposedly about benefits possibly going to illegal immigrants, and linking that vote in a basically dishonest way to claim that those benefits are being willfully taken from veterans.

But with the help of the $410,000 chipped in by the Jobs First Independent Expenditure PAC, Mass. Fiscal delivered an average of 95,000 pieces of mail to each of the districts of the 20 targeted Democratic incumbents. That’s more than two pieces of mail for every constituent, and it amounts to an expenditure of $20,000 in each district. To put that number in context, a state representative is not doing too badly if his or her Committee-to-Elect averages $20,000 over the course of an election cycle. Of the twenty candidates selected for targetting by Mass Fiscal, eighteen were re-elected, but the mailings had succeeded in delivering their threat.

So you can imagine that the Democratic members of the House were not happy to find two recent missives to their inboxes delivered by Mass. Fiscal: one on the urgent need to provide MBTA management with “relief” from the onerous (which is to say, union-friendly) Pacheco Law, and the other on the urgent need for another sales tax holiday this year. Their letters to House members are at the end of this post (click to enlarge).

Mass. Fiscal’s June 24 letter on the Pacheco Law begins with a flex of its 2014 monetary and electoral pecs (95,837 pieces of mail per district) and then goes on to express its considerable disappointment that the Legislature’s Transportation Committee failed to provide the MBTA with relief from the Pacheco Law. What the letter fails to acknowledge is that the full House had already included that relief in the annual budget it passed two months earlier. (Note that the Herald editorial quoted approvingly in the letter does acknowledge the House budget action on the Pacheco Law.)

Therefore, with Mass. Fiscal having proven its commitment to misinformation, it would not be surprising if House members chose not to buck them on the sales tax holiday. If you’re a state rep with reason to think a “no” vote will later be used against you in an unscrupulous fashion — recast, perhaps, as a vote to tax veterans so that immigrants can go on a holiday, why bother?

Happy shopping.



“Breaking Faith” with the Voters: A Tale of Two Ballot Questions

The Justices of the Supreme Judicial Court have ruled that the income tax proposal the Senate included in its budget is not unconstitutional, ending the legal controversy, but not the political controversy.

The Senate’s income tax plan would freeze the personal income tax rate at its current rate (5.15 percent) rather than allowing a formula to remain in place that year by year automatically lowers it to 5 percent. The plan would also increase the personal income tax exemption and the state earned income tax credit, thus providing a modestly progressive adjustment to state income tax collections.

Opponents of the plan have taken to saying that the proposed freeze amounts to “breaking faith” with the electorate that voted back in 2000 to reduce the rate to 5 percent. The Herald used the phrase in a recent editorial. And Governor Baker repeated the charge in an interview on Boston Public Radio last week.

“Breaking faith” — that sounds grave. It’s a phrase that might lead you to think, for example, that the Legislature has never before tampered with a ballot question that the voters had passed. Well, that’s an assumption easily disproved. We can start with a pair of ballot questions, one from 1998 and the other from 2000.

In 1998, voters approved with 58 percent of the vote a ballot question providing for public financing for political candidates who agreed to fund-raising limits. The Legislature, whose leadership abhorred the new law, refused to provide the revenue necessary for its operation. The law remained on the books for a while, but the lack of funding kept it from taking effect.

In 2000, two years after the voters approved the public campaign financing initiative, a question to reduce the state income tax from 5.85 percent to 5 percent over the course of three years was on the ballot. Republican Governor Paul Cellucci strongly supported this proposal, and his administration worked hard to convince skeptical voters that the state could afford this enormous tax cut without cutting state services. The Governor’s Secretary of Administration and Finance was dispatched to proclaim that, far from resulting in service cuts, the tax rate reduction would stimulate economic activity and produce more revenue. In what was likely one of the last straight-faced invocations of the Laffer curve, the Secretary promised: “when you cut taxes you have a stimulating effect” (Globe, 10/31/2000). As it happens, the Secretary was Stephen Crosby, the current chair of the state Gaming Commission, who today promised that casino gambling will bring as much as $400 million annually to the state.

Voters approved the tax rate cut that November, although by a lesser margin than the public campaign financing initiative had received two years earlier. But even before the year was out, state tax collections had begun to drop precipitously: the tech stock bubble was bursting. Only weeks after promising no cuts in services, Secretary Crosby was rethinking the entire situation. “That’s a colossal drop” in tax collections, he said. “That’s like falling off a cliff. That gives the message that we need to be ready” for spending reductions (Globe, 12/24/2000).

And the next few years would bring even more problems — the tragedy of 9/11 and the additional economic bad news that followed. The Legislature turned to paring programs and services and they also used the fiscal crisis as an opportunity to repeal the public campaign financing law. Said Governor Mitt Romney in okaying the repeal — “I do not want to put in our budget, particularly in a year with the financial challenges we have, money going into a Clean Elections fund.” In addition to cutting services, the Legislature also halted the voter-approved income tax reduction at its then-current level of 5.3 percent and put in place a formula tying future rate reductions to growth during the prior year, which is how we arrived at the 2015 tax rate of 5.15 percent.

In order to pave the way for the repeal of public campaign financing, the Legislature placed a non-binding question on the ballot in 2002 asking voters whether they approved of using taxpayer funds to pay for political campaigns. Money raised from large corporations funded an ad campaign that persuaded voters to reverse their prior vote in support of public campaign financing. No comparable effort was launched with respect to the income tax cut, so we don’t know whether voters would have favored significant reductions in funding for their schools, libraries, police and fire departments.

In the 15 years since the voters approved the income tax cut on the basis of a promise that it would increase revenue, that cut has been responsible for much of the reduction in funding for important state services: higher education is down 20 percent; early education down 23 percent, public health down 25 percent; local aid down 44 percent. (Hat tip for the stats to MassBudget.)

So what does it mean to “break faith” with the voters? To freeze the income tax rate and provide a small governmental counterweight to the growing problem of income inequality? Or to continue to peddle a promise made the better part of a generation ago that never could have been kept?

Boston 2024’s Guide to Poetry: Start with “Ode to Sport”

As the Globe reports today, Harvard was surprised to learn that Boston 2024’s original plans called for the university to play host to the tennis, water polo, field hockey, fencing and aquatics competitions.

Harvard might also be surprised to learn of Boston 2024’s claim that, like the other colleges and universities here, Harvard is “dedicated to Coubertin’s vision of education through sport” and that it is “already developing a K-12 and college-level curricula to promote the values of Olympism.”

Say what? Starting with — who’s Coubertin?

Pierre de Coubertin (1863-1937) is considered the father of the modern Olympic Games (or as Charlie Pierce has put it, he is “the glorious nut” who decided to relaunch the Olympic games in Athens). His intellectual career was devoted to demonstrating that organised sport, especially as practiced in ancient Greece, confers mental, moral and social strength. Modern scholars have criticized his work as overly romantic and historically inaccurate, but his reputation within the International Olympic Committee remains secure.

And he’s not only the father of the modern Olympic games, he was also a gold medal winner in 1912 — in the literature category (which I gather is no longer included among Olympic events) for his poem Ode to Sport.

You really should read Ode to Sport. If it were a wine, you might describe it as very fruity and light-bodied, with a bouquet of sentimentality and notes of fascism. Here’s a sample:

O Sport, you are Fecundity! You strive
directly and nobly towards perfection
of the race, destroying unhealthy
seed and correcting the flaws which
threaten its essential purity. And you
fill the athlete with a desire to see his
sons grow up agile and strong
around him to take his place in the
arena and, in their turn, carry off the
most glorious trophies.

The entire Ode is here.


Get to Know your Olympic Corporate Overlords: A Quiz

The folks at Boston 2024 have released the names of their donors for the first quarter of the year. Many of these donors are very wealthy corporations that sometimes make the news. See how many Olympic corporate overlords you can match to the news they’ve made.

A. This corporate overlord is currently undergoing a “reinvention plan” that will close 225 of its stores and eliminate the jobs of the employees working in them. The compensation of the CEO whose idea this is has nearly doubled in the past three years and now stands at $12.4 million.

B. This corporate overlord benefitted from a state guarantee of bonds for costs associated with the construction of its new Boston headquarters. Its CEO, who is himself a co-chair of the Boston 2024 Innovation and Technology committee, made $36.6 million in 2014, tops in the state. The company’s shareholders voted against that high salary, but their vote is nonbinding and it is expected that the overlord will simply ignore it.

C. The stock price of this corporate overlord fell one percent to $4.57 in 2014, in part because it agreed to pay $60 million to settle a shareholder lawsuit that it had artificially inflated its revenue by overcharging clients. Its CEO made only $13.5 million in 2014, down from $15.5 million the previous year.

D. This corporate overlord was recently fined by federal regulators for unfairly charging customers for an “identity protection” service of questionable value that they may not have even received. It has discontinued the service and has spent $37.6 million refunding customers who paid for it.

E. This corporate overlord received a $22.5 million tax break from the state to maintain its headquarters in Boston. The CEO suite in its new home, which includes woven silk wallcoverings from the Netherlands and a personal exercise room (price tag $4.5 million), was the work of Suffolk Construction, whose CEO, John Fish, is Boston 2024’s top donor so far this year with a gift of somewhere between $1 million and $2.5 million.

1. Santander Bank

2. Vertex Pharmaceuticals

3. Liberty Mutual

4. Staples

5. State Street Corporation

Glass Half Full: State Senate on Olympics Financing

(Update: July 17: The Governor signed the provision restricting financial support for the Olympics into law.)

(Update: July 7: The budget conference committee report has been filed and it includes the Senate provision restricting financial support for the Olympics. The conferees actually made the prohibition stronger by including tax expenditures (that is, tax credits and deductions) among the kinds of financial support subject to the restriction. Now to the Governor.)


In its budget debate last week the Senate considered two amendments restricting public financial support for the 2024 Olympics. The Senators adopted one of the amendments on a voice vote and rejected the other in a close roll-call vote (no 22, yes 17).

Many of my fellow Olympics skeptics are vexed at the 22 Senators who voted “no” on the roll-call vote, arguing that in doing so they turned their backs on a meaningful opportunity to ensure that no public money will be spent on the Olympics. (That the text of the rejected amendment was the same language that noted Olympics opponent Evan Falchuk and the United Independent Party are endeavoring to place on the next statewide ballot contributes to the irritation.) The amendment that the Senate did adopt, to the extent that it is even mentioned, is written off as meaningless. You can find both of the amendments here.

I have a different view: the amendment the Senate adopted prohibits state agencies, as well as cities and towns, from spending any money to procure or host the Olympics unless the Legislature passes a bill specifically authorizing that spending and unless at least one public hearing is held before any such bill is passed.

Now, one could say — and my fellow skeptics do say — that nothing in the amendment keeps the Legislature from passing an Olympics-funding bill. But inherent in the lawmaking business is that a Legislature cannot constrain what legislation it may or may not pass in the future. The nature of plenary power is that one of the few things a plenary body is unable to do is to make a binding promise.

So while there’s discontent in the No Boston 2024 camp that Senate did not go farther, the Boston 2024 camp must certainly be even more unhappy that the Senate gave them this vote of no confidence. Seems to me that there’s considerable value in getting the House (which dodged the issue entirely in its budget debate) to agree to this provision and to get Governor Baker to sign it into law.

Hey Look: State Senate Takes a Step for Revenues and Tax Progressivity

The State Senate began debate on the annual budget today, and lo — it came to pass that the Senators voted (29-11) to adopt an amendment that will raise additional revenues and will do so in a progressive way!

The amendment freezes the state income tax rate at the current 5.15 percent, repealing a formula enacted in 2002 that automatically reduces the income tax rate when certain fiscal benchmarks are met. This formula has reduced the income tax from 5.3 percent to 5.15 percent since 2002. (Our friends at MassBudget have prepared this excellent analysis of the reasons that this formula compounds the problems of recent declines in state revenue.)

The amendment allocates some of the revenue resulting from the income tax freeze to increasing the state’s Earned Income Tax Credit program, which helps low-income individuals and families meet the high cost of living in Massachusetts. The amendment also increases the personal income tax exemption, which benefits all taxpayers. Pending some more number crunching, I’ll speculate that for most taxpayers, the increase in the exemption will offset the freeze in the tax rate. The taxpayers for whom the increase in the exemption is least likely to offset the freeze in the tax rate are those at the upper part of the income spectrum.

So, good on the Senate. Will the House go along when the Senate and House meet to reconcile their respective budgets? As of now, the signs are not so good. Speaker DeLeo is vexed at the Senate for even debating tax policy when, in his view, the House did not relinquish its sole power to originate what our State Constitution calls “money bills.” He’s even threatening to go to court over the whole thing. Details here.

In any event, it’s a sure thing that the Speaker won’t go along unless his members convince him to do so.

What’s a “Money Bill?” (More Annals of Senate-House Discord)

Update: May 19: Speaker DeLeo continues to be peeved that the Senate regards the budget proposal that the House passed last month as a money bill, and is now threatening to take the entire matter to court, which could delay the completion of the budget past the end of the fiscal year on June 30.

Let’s review. The House budget includes a provision expanding the amount of money available for a tax credit program, thus reducing general state tax revenue. The House and Senate have agreed (in a document on the Legislature’s website) that a money bill “may either reduce general state tax revenue or increase state tax revenue.” Q.E.D.

Hmmm. Is litigation over the meaning of a money bill the sort of “progress and cooperation” that we were promised?


Original post: May 7

The annual state budget process, now underway, has opened a new battlefront in the ongoing power struggle between the Senate and the House: what’s a “money bill?”

Our State Constitution (in Part II, chapter 1, section 3, article 7 for you wonks out there) says that “all money bills shall originate in the house of representatives; but the senate may propose or concur with amendments, as on other bills.”

We know from a very old decision by the Supreme Judicial Court (126 Mass. 557 for you wonks out there) what a money bill is not — it is not simply a bill that appropriates money for government spending. Money bills, the court said in that decision, are those that “transfer money or property from the people to the State.”

The Constitutional provision giving the Senate the power to “propose or concur with amendments” to money bills muddies the waters of that court decision a little. Are money bills only those that raise taxes? If the House were to propose a new tax, the Senate’s power to propose amendments would seem to allow that body latitude to increase or to lower that tax, or other taxes, or to change tax deductions or tax credits, or to otherwise amend state tax policy.

So in recent memory the House and Senate have defined a money bill as any bill that alters tax policy. In 1997, for example, the House budget proposal included a tax credit for homeowners who had to upgrade their septic systems and a one-year extension of an investment tax credit. The Senate, with the understanding that the House budget was a money bill, proposed additional tax credits and deductions, including the establishment of a state counterpart to the federal earned income tax credit for low-income families.

In the interest of preserving its sole power to originate money bills, and therefore to control when taxes are even considered, the House has been very careful about when it proposes any changes in tax policy. And the Senate has kept its side of the bargain, deferring to the House — to the frustration of many of that body’s members who would like an opportunity to debate tax policy, including its GOP members, who are eager for a debate on tax cuts.

But this year there are complications. During its budget debate last month the House adopted an amendment expanding the cap on a land conversation tax credit from $2 million to $5 million (a proposal, if you’re wondering, that has not been through the Speaker’s vaunted “committee process”). The inclusion of that provision led Senate President Rosenberg to pronounce the House budget a money bill and to add that the Senate would be taking up taxation issues in its budget debate.

It’s not clear whether House Speaker DeLeo was aware of the money bill implications of the tax credit amendment when he agreed to it. He has said that he disagrees with the Senate position (but note that he avoids using the language — “money bill” — that would clarify his view): “I don’t think it’s a revenue bill…I think a revenue bill involves that where, very simply, you’re talking about the increasing of revenue and I don’t think the budget that we did did that at all. So I feel clear that it’s not a revenue bill.”

It would seem that the Speaker now has a couple of choices: to concede that the tax policy provision in the House budget makes that bill a money bill, or to adopt a new policy that restricts the definition of a money bill to one that increases revenue rather than one that alters tax policy. The second choice might help save face this year, but it would mean a significant weakening of the power of the House to control tax policy debate in the future.

In the meantime, the Senate will have a rare opportunity for far-ranging tax policy discussions in its budget debate next week.

To sum up this latest skirmish: unforced error by House Speaker DeLeo, advantage Senate President Rosenberg.