Two-month sales tax holiday may not make economic sense
THE DEBATE OVER Gov. Charlie Baker’s proposed two-month sales tax holiday has turned into a partisan, interest-driven dispute.
Baker, a Republican who has not yet announced whether he will run for reelection, portrayed the tax holiday as a way to keep more money in the hands of consumers, while helping small businesses. “We are proud to offer this proposal to keep money in the hands of taxpayers and promote economic development amidst Massachusetts’ recovery from the COVID-19 public health emergency,” Secretary of Administration and Finance Michael Heffernan said in a statement.
Businesses that would benefit from increased sales are, unsurprisingly, supportive. Retailers Association of Massachusetts president Jon Hurst, in a statement included in the governor’s press release, called it “a smart, exciting, and progressive economic incentive that will benefit our small businesses and our consumers just when they need it.”
But liberal groups panned the move as a gimmick that would divert an unexpected budget surplus away from other government spending priorities. “The tax dollars the Commonwealth would lose from this 2-month sales tax holiday could support local schools by accelerating funding for the Student Opportunity Act, provide opportunities for affordable childcare that will help businesses and families, and encourage travel by enabling transit authorities to stop collecting burdensome bus fares,” said Marie-Frances Rivera, president of the liberal-leaning Massachusetts Budget and Policy Center.
The State House News Service reported that Senate Ways and Means chair Michael Rodrigues, a Westport Democrat, also called the extended sales tax holiday a “short-term political gimmick,” while Senate President Karen Spilka was equally cool to the idea.
The presidents of the Massachusetts Teachers Association and American Federation of Teachers-Massachusetts issued a joint statement criticizing Baker for wanting to boost big box stores and online retailers instead of investing in colleges, public schools, and transportation. Merrie Najimy of the MTA and Beth Kontos of AFT Massachusetts called it “Baker’s billion-dollar giveaway.”
On one hand, the debate is coming down to the typical Republican versus Democrat dynamic, with Baker favoring lower taxes and putting more money into the hands of consumers, and Democrats wanting more government spending to shore up public infrastructure.
But largely lost in the political shuffle, points out Evan Horowitz, executive director at the nonpartisan Center for State Policy Analysis at Tufts University, is whether the move makes any sense economically. Horowitz said from an economic perspective, this is not the right time for additional stimulus. There is already a lot of stimulus money out there, distributed by the federal government. Many people have actually been saving money during the pandemic, since they had fewer activities to spend it on.
The increased spending is already leading to inflation. A surge in construction and home renovation projects are resulting in lumber shortages. A microchip shortage, caused by COVID-related supply chain disruptions, is making it harder to buy cars and other electronics.
Meanwhile, businesses like restaurants and hotels are struggling to hire enough workers to keep up with demand.
Horowitz said there may be ways to effectively target aid to individuals and small businesses that still need help. But the problem for many businesses is no longer a lack of people buying. “Lots of businesses are having the opposite problem,” Horowitz said. “You can’t keep up with demand.”
Atrius up-coding concerns: The Health Policy Commission veered into uncharted waters when several members of the board questioned the executive director’s decision to end a review of the proposed acquisition of the Newton-based nonprofit physician group Atrius Health by for-profit Optum of Minnesota.
— Don Berwick chided the commission staff for failing to fully investigate reports that Optum is gobbling up physician practices around the country and using sophisticated data-gathering techniques to mine the health background of patients to build up or inflate the seriousness of their diagnoses. The practice is called up-coding — the more serious the diagnosis, the more the health care provider is paid for the treatment provided.
— David Seltz, the executive director of the commission, said the staff of the agency concluded there was no justification to launch a broader review of the acquisition because they concluded it would not significantly increase medical spending in Massachusetts or disrupt the market. Seltz also said it would be difficult tracking information on up-coding in other states.
— In 2019, the commission reviewed five years of data on the Massachusetts market and found a sharp increase in patients being discharged with high-acuity codes and patient risk scores. The researchers said it was implausible that the general population suddenly was getting sicker and concluded health care providers were massaging the diagnosis codes to increase their payments.
— Board members had never questioned a decision on a merger review in the past, and officials were a little uncertain what to do. The meeting ended with no formal decision, but it appeared Seltz was going to stand by his decision while including the board concerns in a letter summarizing the commission’s investigation to the attorney general’s office, which is still reviewing the transaction. Berwick disagreed with the decision. Read more.
Lawmakers cool to Baker spending plans: The House and Senate rejected the governor’s bid to seize control of more than half of the roughly $5 billion in federal aid the state has received, and they indicated his proposal to expand a two-day sales tax holiday into a two-month affair at a cost of $900 million in foregone tax revenue was unlikely to make much headway. Read more.
Strong support for vax mandates: Polling results show strong support among state residents for mandating vaccination of public school teachers and staff, first responders, and state employees, with about three-quarters of respondents in favor of requiring vaccinations for those groups. There is a partisan divide, however, with much stronger backing for vaccination mandates for those groups among Democrats than Republicans. Read more.
Bus prescription: Transportation advocates Jeremy Mendelson, Julia Wallerce, and Arcady Goldmints-Orlov recommend five ideas for making bus service more reliable. Read more.
Utilities under fire: Rep. Natalie Blais, Sen. Jo Comerford, and Daniel Sosland of the Acadia Group say a sweetheart deal guaranteeing utilities a roughly 3 percent rate of return has to end. Read more.
FROM AROUND THE WEB
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St. Charles County in Missouri agreed to pay $280,000 to three journalists with Al Jazeera who were tear-gassed by police at a protest in Ferguson. (Associated Press)