Massachusetts' Unfair Taxes and Mandates

The Commonwealth of Massachusetts has taken many steps that have foreseeable results that are detrimental to the citizens and businesses in the state, yet our leaders seem oblivious to the logical results from those actions. Our politicians don't care when they make decisions that have a net-negative effect, so long as their constituencies are protected.

The issue we are all paying for now is the increase in the state's sales tax, from 5% to 6.25 - 7%. This is a 25% - 40% increase and is going to prove detrimental to all of us, directly or indirectly.

In the short-term, this will increase net taxation. When is that a good thing (especially during a recession)? But the long-term effect is clear. Increased taxes and government employment do not increase private economic activity, which is what is funding all of the government spending and provides all the tax revenue. Hurting private enterprise even a little bit can be devastating to the long-term economic well-being of the private sector. A "tipping point" will be reached on a case-by-case basis for many Massachusetts companies that will end up costing our society much, much more than whatever is "raised" through the increase in sales tax.

Many Bay Staters will be hopping in their car to drive to New Hampshire to shop. As the incentives increase to shop elsewhere, even a small change in shopping patterns will have significant effects on retail sales in Massachusetts.

Some consumers will simply buy less, reducing projected "revenues" (if you can call taxes by that name).

The indirect cost is much harder to calculate but could be equally detrimental. Small businesses that are already struggling might have to reduce their workforce, or even close, if they lose more customers. One layoff means less income tax being paid, fewer local purchases, and perhaps even a foreclosure or bankruptcy for that worker's family. This is not an unintended consequence of our legislator's decision to raise the sales tax. It was entirely foreseeable.

With every unfunded mandate that businesses are forced to pay, it gets tougher and tougher to compete and survive. Businesses must pay very high employee taxes and benefits that the state requires. A couple of years ago, the state passed a new law requiring most labor to be treated as employees rather than independent contractors. That is a great law for these employees, if they still have a job. Once a business changes these workers from contractors to employees, they must pay much higher taxes and benefits. The cost-benefit calculation to keep them employed also changes, which could result in layoffs as well.

What our political leaders and their supporters are missing is very simple. In a capitalist society, what creates jobs and prosperity is private business. Capitalism isn't perfect, but it does some things extremely well. Creating jobs is one of them.

But every time you take a small step to reduce a business' ability to compete and perform efficiently, you have several consequences. Massachusetts has taken many small steps over the years and is simply making it less and less attractive for businesses to try to operate here. If we keep down this path, pretty soon the only employees left will be working for the government and all the private employers will go out of business. Perhaps that is what is starting to happen now.

So while it would be nice for the government to be able to raise taxes by increasing the tax rates or "closing loopholes," they are instead reducing some of that important incentive that capitalism needs to thrive. Instead, raise more revenue by increasing economic output. Get people back to work, get them paying more income taxes, get them spending more so that sales tax receipts (at 5%, instead of 7%) are higher, get them back to investing in stocks so the gains are taxed. That's the way to increase the government's revenue, not by increasing the percentages and seeing if businesses can still survive with higher fundamental costs and unfunded mandates.

And when the economy contracts, the government must reducing spending to compensate, not raise taxes.

Democratic Senator Paul Tsongas said in his speech at the 1992 Democratic Convention, “You cannot redistribute wealth you never created. You can’t be pro-jobs and anti-business at the same time. You cannot love employment and hate employers.”


Taxes and Independent Contractors

******This is an anonymous comment emailed to Posted by webmaster on behalf of commenter on Thursday, October 8th, 2009.*********

I just read your article "Massachusetts Unfair Taxes and Mandates" and it hit a direct nerve for me -- I have recently lost my livelihood as a direct result of the Massachusetts Independent Contractor law. I have worked as an independent contractor for the past 7 years and as of this Fall my biggest client has pulled all of their business out of Massachusetts specifically because of this law -- projects that I used to work on are now going to freelancers in New Hampshire, Rhode Island, etc. I know other freelancers in my industry who are out of work as well because of this law. The state of Massachusetts is now losing my income tax revenue (I don't have any income) -- AND, with my loss of income we will not be spending much $$ this holiday season, so the state will not be benefitting from sales tax hikes either. We are considering our options at this point, which seriously include moving out of state.

Thanks for pinpointing this crucial issue in your article.