The tax that fails the T
ASKED WHY sales tax revenue in Massachusetts barely increased last year, Alan LeBovidge said playfully: “You’re not spending enough!” The Massachusetts revenue commissioner has a point. The purchases of new cars and home improvement supplies are down, and they are important sources of sales tax revenue. But he acknowledges a broader trend: the 5 percent sales tax, based on the purchase of goods, does not reflect the move to Internet transactions and other consumption patterns. Massachusetts policy makers are unwise to rely on the sales tax so heavily to support the MBTA
Sales tax revenues are up 1.1 percent so far this fiscal year, which ends June 30. And for the last five years, it has gone up about 1.3 percent a year. In the 1990s, the annual growth rate averaged 4.6 percent a year.
One reason for the slowdown is the popularity of Internet transactions. Because of federal law, Internet businesses with stores outside Massachusetts do not have to collect sales taxes. Congress ought to include them in the state tax system, but even this would not return sales tax revenues to their earlier rates of growth. Consumers today prefer to spend more on services, such as legal work, cosmetic treatments, and financial counseling, which are not taxed.
In hindsight, it was bad timing for the Legislature in 1999 to tie state support for the MBTA to the tax. The T receives one percentage point of the sales levy each year, a subsidy that will amount to about $734 million in this fiscal year. The legislators figured that support for the T would increase at least 4 to 5 percent a year, but they were wrong.
The shortage of sales tax money explains why the T had to raise fares 27 percent on Jan. 1. Fares are the only major source of revenue under its direct control. If sales tax revenues remain flat, another large increase is inevitable unless the Legislature intervenes. This must be avoided, as fare increases drive down ridership, which is key to any successful public transit system.
Some legislators are proposing that the state assume $2.9 billion of the $5 billion T debt, but that’s too much for the tight state budget. T General Manager Daniel Grabauskas hopes the Legislature will increase the operating subsidy by 3 percent a year, no matter what the sales tax does. That should be more palatable for budget writers.
The School Building Assistance Authority also depends on a percentage point of the sales tax. That source needs to be revisited at some point, but the authority has more discretion over the pace of spending than the MBTA does . The T needs relief quickly.
Massachusetts consumers may eventually heed LeBovidge’s advice and buy more cars and sheetrock. But the MBTA shouldn’t have to depend on shopping habits to determine the affordability of its service. The Legislature needs to revisit MBTA funding this year.
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