With health assessment, Baker heading down familiar path

Proposed levy has shades of Patrick's ill-considered software tax

“ONCE BURNED, twice shy.”

Will the Legislature heed that aphorism in response to Gov. Baker’s proposed health care tax on employers to help balance the state’s fiscal 2018 and 2019 budgets?

Four years ago, then-Gov. Patrick proposed a tax on computer software and services to help expand funding for transportation. He assured the Legislature that this was a modest change that would simply put Massachusetts in the mainstream among the states in taxing these services. With slight modifications, the House and Senate included the tax in the state’s fiscal 2014 budget.

However, it soon became apparent that the tax was much broader than advertised and would have a much more serious impact on employers and the state’s innovation economy than the administration had contended. After a stormy few weeks, the governor and Legislature repealed the tax in September 2013.

Four years later, we have a different governor but, like Patrick, he’s scrambling to find money to fund local aid, education, and other important programs, and, like Patrick, he sees employers as a convenient source of revenue.

In a recent piece for CommonWealth, I argued that the proposed tax (billed as an “assessment”) did not address the underlying causes of escalating Medicaid rolls and expenditures and did not, as the administration claimed, restore an element of the bipartisan 2006 universal health care law. To the contrary, the proposed tax would directly undercut the bipartisan agreement.

In a new draft policy brief reported by the State House News Service, the Massachusetts Taxpayers Foundation has called into serious question the administration’s argument that the growth in Medicaid spending is largely the result of a shift away from commercial coverage offered by employers. (Full disclosure: I had nothing to do with the analysis.)

And it has now come to light that the tax would apparently raise almost $600 million in a full fiscal year, $300 million for the second half of fiscal 2018 and nearly $600 million in fiscal 2019 during the election season.

What will the Legislature do? The House is next up in the budget process so the burden falls on Speaker DeLeo and Ways and Means Chair Brian Dempsey to chart a course that avoids the pitfalls of four years ago.

Baker’s proposal is purely a short-term budget fix and ignores the larger reality that MassHealth is providing a level of eligibility and benefits beyond the capacity of the state to pay for without cannibalizing the rest of the state budget. At some point the state will have to come to terms with that reality.

Meet the Author
On the surface the proposed health care tax on employers has little in common with the tax on computer software and services. But beneath the surface they are close cousins. Both are acts of fiscal desperation that propose misguided solutions unrelated to the problems they seek to address. Both would add to the high costs of doing business in the Commonwealth and would unquestionably lead to layoffs.

“Plus ca change, plus c’est la meme chose.”

Michael Widmer is the former president of the Massachusetts Taxpayers Foundation, a business-backed group that monitors the state’s finances.