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.

MassFisc0625

MassFiscal0717

Nice Casino Referendum You Got There: Too Bad if Anything Was to Happen to It

House Speaker Bob DeLeo, the Legislature’s biggest casino fan, had some ominous-sounding words to say to WGBH News yesterday about the possible budget consequences if the casino repeal succeeds at the polls:

Massachusetts speaker of the House Bob Deleo says lawmakers would have to patch a multi-million dollar hole in the state budget if voters choose to repeal the casino law in November.

“We would have to make some difficult decisions in terms of cuts. That’s one of the issues I thought about this morning actually,” DeLeo told reporters Wednesday.

The state is banking on $54 million in casino licensing fees and $20 million in slot parlor money in the budget for the fiscal year that begins July 1.

“We’ve already started to use it and depend upon it.”

OK, OK. Message received. We are to understand that there’s a threat of a big budget hole — something that would require either big budget cuts or big tax increases to fix.

Well, those of us who think casinos are a terrible idea also like to think of ourselves as problem solvers. And if budget cuts might be needed because the casino law is repealed, we offer up one suggestion to the House for the very first cut to make: give up the “sales tax holiday” that you have proposed for the second weekend in August.

The sales tax holiday weekend is a gimmick that’s been going on in the state for a decade. Its original purpose was to encourage people who to go buy things that they would not ordinarily buy during one of retail’s slowest months. But, even assuming that the holiday met its intended goal a decade ago, the fact that the Legislature has reprised the holiday in seven of the eight subsequent years has substantially reduced whatever stimulative power it once had. Now that buyers anticipate the holiday, it doesn’t encourage more sales, but simply shifts the timing of sales to coincide with the holiday. Little wonder that the Senate Ways and Means Chair, while defending the program, said in a moment of understated candor that it “may not be the finest public policy on the planet” (State House News, 7/28/11). On top of everything else, the accounting complexities the holiday requires of retailers favor bigger rather than smaller companies. The result? One weekend each August we shovel millions to our Walmarts.

According to the Department of Revenue, last year’s sales tax holiday cost the state over $24 million. We could make up one-third of the $74 million gap that Speaker DeLeo is forecasting just by bagging the sales tax holiday this year. Now that didn’t hurt too much — maybe this won’t be such a big problem after all. And eliminating the sales tax holiday is just one idea.

The budget hole that concerns the Speaker, when compared to the $22 billion in revenue that the state will collect amounts to…let’s see, about three-tenths of one percent. And by eliminating the sales tax holiday we’ve already made a big dent in that three-tenths of one percent.

The Speaker really shouldn’t worry so much.

Let’s Have a “Sales Tax Holiday” Holiday This Year

Update: July 23, 2015: In the two years since this post was written, the state has held two more sales tax holidays, with net losses in tax revenue of $22 million (2013) and $21 million (2014). We’re well on our way to losing $200 million since the first holiday 11 years ago.

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Original post: July 23, 2013

Summer is at its peak. The tomatoes are ripening, tassels are appearing on the corn, and our Legislature, once again, is entertaining the idea of a “Sales Tax Holiday.” For eight of the nine past summers, the Legislature has chosen one weekend in August to suspend the state sales tax, declaring the event a once-a-year respite for the hardworking taxpayer. That hardworking taxpayer, whose car needs four new tires because of the deplorable condition of our roads, will get to pocket about $20, and our roads will remain deplorable.

In 2004, the year of our first sales tax holiday, retailers predicted that the economic growth created by the enormous volume of sales would more than make up for the loss in sales tax revenue. “Christmas in August,” they beamed. “Bring it back next year.” And so the Legislature has.

But every successive holiday (only in recessionary 2009 was it cancelled) has added doubts about its economic wisdom. To the public, the holiday is no longer an unexpected surprise, it’s a settled expectation. (Jordan’s Furniture is already announcing in television ads that this year’s holiday will be the second week in August.) And, as the Tax Foundation has documented, when buyers are able to anticipate the holiday, it does not stimulate more sales, but simply shifts the timing of sales to coincide with the holiday.

Studies by our state Department of Revenue of the most recent sales tax holidays confirm the Tax Foundation’s cautionary findings. Even accounting for (the very small amount) of increased economic activity that was generated, the net loss to the state from the 2012 holiday was $21 million. In 2011, it was $18.7 million. In 2010, it was $18 million.

Our state leaders seem to be aware that the sales tax holiday makes less and less sense as a policy matter. When Governor Patrick signed the 2011 holiday into law, he observed that, while it was popular, it was not necessarily prudent (State House News, 8/1/11). And the Senate Ways and Means Chair, while defending the program, said in a moment of understated candor that it “may not be the finest public policy on the planet” (State House News, 7/28/11).

The total losses from our eight sales tax holidays have almost certainly exceeded $100 million.* That money could pay for some repaired bridges, roads and dams, or for an investment in high quality pre-school education for more of those kids who will one day be supporting us in our retirement (may their accomplishments — and their salaries — suffice).

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*In addition to the figures for 2012, 2011 and 2010 cited above, the Department of Revenue estimates that the 2008 holiday cost $13.1 million. That makes a total of $70.8 million, not including the holidays for 2007, 2006, 2005 and 2004 (which was a one-day rather than a weekend holiday).