Baker takes new tack on taxes

GOV. CHARLIE BAKER, normally a skeptic when it comes to tax hikes, sprinkled new taxes and new tax revenue throughout the annual budget proposal he filed on Wednesday.

A proposed increase in the tax on real estate sales would fund programs to help the state protect property from the ravages of climate change. The state’s cigarette excise tax would be extended to the liquids used in e-cigarettes. And a new tax would be assessed on opioid manufacturers who sell their products in Massachusetts, generating revenue for state programs to deal with opioid abuse.

The budget also contains accelerated sales tax remittances that would provide one-time revenues to help pay for the Baker administration’s education plan – the biggest initiative in his fiscal 2020 budget proposal. Another provision of the budget bill would apply the sales tax more broadly on the internet, requiring online marketplace facilitators to collect the tax on behalf of vendors whose sales in Massachusetts exceed a threshold determined by the Department of Revenue.

All of the revenue measures have put the Republican governor in a somewhat novel situation – explaining and defending his tax agenda.

“The bottom line is from the beginning we’ve said, if we’re leveling the playing field, which many of those elements you just discussed do, or we’re creating new services that we believe on a targeted basis are important, then we’re going to propose those,” Baker said during Wednesday’s budget press conference.

While Baker plots new revenue streams, Massachusetts is already due to receive new tax dollars from a variety of sources: the newly legalized and burgeoning adult-use marijuana retail stores; possibly the casino industry, which may or may not include a new Boston-area casino later this year; and short-term rentals such as those booked through Airbnb, which will be levied in accordance with a law Baker  recently signed.

Democrats, meanwhile, are mounting another bid to enshrine a surtax on the state’s highest earners in the state constitution, after the Supreme Judicial Court rejected a similar proposal last year. Baker took no stand on that proposal before the court nixed it, though he hinted he was against it. Baker has also proposed legalizing and taxing sports betting to generate roughly $35 million more for cities and towns.

The Republican governor’s friendly eye toward new revenues struck at least one Beacon Hill watcher as a little out of character.

“I think for someone who’s run on a no-new-tax platform – I mean, you heard his explanation of that – it is a little surprising I think,” said Eileen McAnneny, president of the business-backed Massachusetts Taxpayers Foundation.

Last November, the governor handily defeated Jay Gonzalez, a budget chief for the Patrick administration, who argued on the campaign trail that the state needs more revenue for transportation and education priorities.

Most of the new revenue outlined in Baker’s budget has been spurred by crises, including school district demands for more funding to educate students, the immense challenges presented by rampant addiction to heroin and fentanyl, and the looming threats associated with climate change.

The higher real estate sales tax would generate a projected $75 million in fiscal 2020 and about $137 million on an annualized basis, according to the governor, who unveiled that proposal at a meeting of the Massachusetts Municipal Association last Friday.

“We need to get serious about resiliency. We need to get serious about climate change. And we need to put mechanisms in place that make it possible for us to make the investments in resiliency that can protect people’s property so that they don’t have to continually – over and over again – rebuild after there’s a storm,” Baker told reporters on Wednesday morning. At his budget press conference, Baker said, “It would be a dreadful mistake for us to stick our heads in the sand” and not come up with a funding source.

When talking to reporters on Wednesday morning, the governor was careful to distinguish his proposal from property taxes, which are set by local governments. He also emphasized that the deed sales excise tax hasn’t been raised since 1988.

The 15 percent tax on opioid manufacturers who sell their products in Massachusetts would generate an estimated $14 million, according to the Baker administration, which plans to ramp up its efforts to address the crisis by spending $48 million more in fiscal 2020 than it will through fiscal 2019.

“It’s charged to the manufacturers,” Baker said of the proposed opioid tax. “You can’t do anything about how they actually run their books. But the manufacturers have a lot to do with creating the crisis that we all are paying for every day. And creating a mechanism in which they put something in to help pay for the carnage they created I think is important.”

Public officials have for years raised the alarm about e-cigarettes and their potential to get teens hooked, potentially serving as a gateway to cigarettes or other tobacco products. Baker last year signed into law a bill to bar e-cigarette usage from workplaces and raise the purchase age to 21. In his budget, Baker proposed taxing the liquids or gels for electronic cigarettes similar to cigars – at 40 percent of the wholesale price. State officials estimate the measure will raise $6 million.

McAnneny had a broadly supportive view of the opioid tax, and said she hoped to learn more about Baker’s other proposals. She was particularly concerned about the changes to the sales tax, which she said tallied up to just over $300 million in new revenue.

“There’s an awful lot of new revenue proposals in there, whether they were enacted last year and are now being implemented in fiscal year 2020 or they’re being proposed,” McAnneny said after Baker’s budget announcement.