(September 15, 2020) The Beacon Hill Institute (BHI) today released a study highlighting the potential economic losses from implementation of local option tax under consideration by the legislature.
Amendment S. 2836 would permit cities and towns to impose a tax surcharge on sales, real or personal property taxes, room occupancy and vehicle excise taxes. Any revenue raised by the surcharges must be used by the city or town for “transportation projects”. The surcharges may also be imposed region-wide via Regional Ballot Initiatives (RBI).
Using its Massachusetts State Tax Analysis Modeling Program (MA-STAMP), the Institute considered an example of how a new tax like this might affect Suffolk County if it were to be adopted there. BHI found that the adoption of a 1 percent sales tax by Boston, Revere, Winthrop and Chelsea – the four municipalities that make up the county – would cost 1,185 jobs in the first year. More significantly investment would fall by $112 million and consumers would enjoy $51 million less in disposable income in the first year. The losses are greater than the expected $60 million in revenue.
“This analysis shows that, within Suffolk County, tax surcharges of the kind considered here would inflict substantial losses in employment, investment, and disposable income,” notes David G. Tuerck, President of the Institute. “The effects across other counties would be similar.”
More damaging would be a 3 percent surcharge on real estate taxes. While the static tax revenue gain to Suffolk Country would be $857 million, the Institute found that employment in Suffolk County would fall by 8,800 jobs and investment would fall by $54 million in the first year. Disposable income in Suffolk County would fall by nearly $750 million in the first year.
“Proposals to fund regional transportation projects need to be examined for their effects on the regional economy,” said Tuerck. “Transportation advocates, hamstrung by political obstacles to tax increases at the state level, seem ready, however, to raise taxes at the regional level without regard to the economic consequences.”
