BHI, Mass. lawmakers again try to gauge revenues

From the State House News Service in the Berkshire Eagle:

BEACON HILL INSTITUTE

Forecasted fiscal 2019 growth: $690 million or roughly 2.8 percent

Paul Bachman of the Beacon Hill Institute said revenue growth has slowed down dramatically over the past few years, a situation he called "a little bit puzzling" given the 70,000 jobs created in the past year. But he said personal income growth has also slowed dramatically -- falling to 0.9 percent in the fourth quarter of 2016 after having been over 5 percent in earlier quarters — and now may be on track for a rebound.

"That's what's driving the less than robust tax revenue collections," he said.

Private Activity Bonds for Buildings Would Create Jobs, Fast Track Construction, and Save Taxpayers Money

In Wake of Hurricanes in TX, FL, PR and VI, new PABS Could Leverage Private Sector Funds to Speed Rebuilding of Gov’t Buildings and Schools

BOSTON, MA— The economic and fiscal benefits of the proposed Public Building Renewal Act (PBRA) could save taxpayers billions while adding billions more to the economy if Congress decides to unlock the proven benefits of Private Activity Bonds for government buildings. That’s the bottom line of a new study released today from The Beacon Hill Institute (BHI) for Public Policy, which conducted an exhaustive economic analysis of the short- and long-term benefits of P3s for addressing an increasingly challenging public policy issue facing state and local governments. 

“Private Activity Bonds for buildings are a triple win for governments, taxpayers, and the economy,” said study author David Tuerck of BHI. “Our findings show that, in the short run, every dollar of new infrastructure investment made possible by the PBRA will add $2.80 to the U.S. economy.  At the same time, taxpayers save nearly 25 percent over the life of these projects compared to traditional building methods, while these projects are delivered on time with guaranteed long-term performance”. 

These Private Activity Bonds would be utilized through a public-private partnership (P3) for a government building project.  A P3 is an arrangement under which a public entity and a private entity work together to build and maintain a public infrastructure project, such as a courthouse or a public library or schools.  Presently, the use of P3s in the U.S. to develop public buildings is limited because, unlike transportation infrastructure projects, public buildings are not currently eligible for private activity bonds. This unnecessary impediment prevents public building P3s from combining tax-exempt financing with private, taxable financing, resulting in an increased cost of financing that is passed on to our state and local governments. 

The Public Buildings Renewal Act (PBRA), introduced by U.S. Senators Dean Heller (R-Nev.) and Bill Nelson (D-FL) and U.S. Representatives Mike Kelly (R-PA) and Earl Blumenauer (D-OR), would allow state and local governments to use up to $5 billion of tax exempt bonds for P3s to construct and renovate public buildings.  The Joint Committee on Taxation scored this legislation, estimating a low cost of $18 million over five years and $48 million over 10 years.  

The pending tax reform legislation could be an opportunity to pass PBRA, which currently enjoys significant bipartisan support from the Ways and Means and Senate Finance Committees.

At a time when hundreds of billions will be needed to rebuild Puerto Rico, US Virgin Islands, Florida and Texas, PBRA could provide a critical financing tool to speed the recovery effort while minimizing cost overruns and guaranteeing long- term performance without deferred maintenance.  According to the Houston Independent School District, 22 of its 245 schools had extensive damage that will keep them closed for months and about 53 have “major” damage, according to school officials. 

Further, if Congress were to make Private Activity Bonds readily available (without a $5 billion cap as proposed in the PBRA), the cost savings and economic effects would soar. Under this scenario, BHI researchers assumed that P3s would expand to 20 percent of all applicable state and local government building, and generate $2.796 billion worth of new buildings.  Under this scenario, expanding Private Activity Bonds would increase real GDP by $8.285 billion and create 43,200 jobs in the first year.  The increase in economic activity would increase federal and state income tax collections by $860 million in the first year.   

Furthermore, the economic effects are cumulative over time as tax-exempt P3s increase the quantity and quality of the public infrastructure.  In ten years, the expansion of P3 projects would: 

•  increase public buildings by $85.90 billion
•  create 32,400 jobs
•  increase real GDP by $8.06 billion
•  increase federal personal income tax receipts by $643 million
•  increase state personal income tax receipts by $146 million

Congressman Mike Kelly (R-PA), lead House sponsor of PBRA, noted, “This new study confirms what so many have been saying all along: the Public Buildings Renewal Act is a win-win-win for American infrastructure, jobs, and taxpayers. I expect many more members of Congress to see this report and join the bipartisan effort to unleash the power of Private Activity Bonds to help solve our nation’s public infrastructure crisis. We have a real chance to repair countless schools, hospitals, courthouses, and more, while reviving our local economies. We can’t afford to let this opportunity slip away.” 

Senator Dean Heller, lead Senate sponsor of PBRA, remarked that, “Now is the time to use the success of P3s in the infrastructure sector as a financing model for repairing our public buildings and other cornerstones of our communities, particularly public schools and libraries. By empowering the private sector, this commonsense idea spurs innovation and will ultimately allow our country’s public schools and universities? to do even more, including save money. I’ll continue to urge my colleagues to support my Public Buildings Renewal Act so that Nevada and Americans around the country can benefit from the impact P3 investment has on our local economies.”

The complete study is available here.

BHI offers testimony on debt restructuring bill before Senate committee

At the request of Chairman Mark Montigny, the Beacon Hill Institute at Suffolk University offered testimony on "An act relative to debt restructuring," this morning at 11:30 a.m. in Room A-1 of the State House in Boston.

Good afternoon, I am Paul Bachman and I am the Director of Research at the Beacon Hill Institute at Suffolk University. I would like to thank the members of the Senate Committee on Bonding, Capital Expenditure and State Assets for opportunity to testify today and, in particular, Sen. Mark Montigny, chairman.

House Bill No. 4617 would authorize the state treasurer to restructure some $573.7 million dollars in state bonds. Given the current budget problems facing the legislature, restructuring is an attractive option. While the restructuring may serve the best interest of the Commonwealth in the current fiscal year, the state's outstanding debt obligations could become problematic in the medium and long term, particularly in light of the state's current high debt burden relative to other states.

Massachusetts Current Debt Burden

Massachusetts carries one of the highest government debt burdens of all 50 states. The Patrick administration's "FY 2010 Capital Budget & Investment Plan" includes a debt affordability analysis. The report section titled "Existing Debt Burden" cites a 2007 U.S. Census Bureau study that ranked Massachusetts third in the nation in outstanding debt and first in the nation in debt per capita. The report also cites numerous debt measurements by Moody's Investor Services and Standards & Poor's that ranks Massachusetts first in tax-supported debt per capita; second in net tax-supported debt as a percentage of personal income; fourth in total net tax-supported debt and fifth in total gross tax-supported debt.

The A&F report attempts to mitigate these sobering statistics by noting that these figures include certain debt issued by entities other than the Commonwealth for which the Commonwealth is not liable such as the Massachusetts School Building Authority (MSBA). The report also notes that the numbers exclude local debt, which can be substantial in other states that have "stronger county governments and other political subdivisions that issue debt to finance capital improvements." The report observes that "it is safe to assume that Massachusetts would likely rank lower when measuring debt as a percentage of personal income or per capita if both state and local debt were taken into account."

Unfortunately, the numbers do not support this safe assumption. The Beacon Hill Institute used U.S. Census Bureau data for FY 2007 to compare the debt burden of Massachusetts to other states using data for both state and local government. At $89.6 billion in FY 2007, Massachusetts state and local debt represented 28% of state personal income compared to an average of 20% for all states. Massachusetts ranked third, behind Alaska at 35.6% and New York at 28.4%. This outstanding debt represents $13,792 per capita, nearly double the $7,990 average for all states, putting us in second place, again behind Alaska.

The A & F report is technically correct that the Commonwealth is not liable for a portion of the debt, which is issued by entities, such as the $4.6 billion in MSBA debt. In fact, the newly created Massachusetts Department of Transportation holds a large portion of this debt, including debt from the MBTA and Massachusetts Transportation Authority. Moreover, the MBTA debt of $6.2 billion for FY 2009 is no longer subject to the statutory bond cap.

However, it is naive to suggest that the state would not ultimately bear at least partial responsibility for the debts of the MSBA or other agencies in the event of a change in status. I am reminded of the Special Investment Vehicles, or SIVs used by banks to remove risky assets from their balance sheets, which eventually wound up back on the balance sheets of many banks. More recently, European Union member states joined the International Monetary Fund to bailout Greece in spite of the fact that Germany and other European states were not liable for this debt.

Thus, I do not think we can rest comfortably with the notion that the Commonwealth is "not liable" for the debts of these entities. Moreover, I think the debt of these agencies should be included in any future debt affordability analysis.

The Beacon Hill Institute's Competitive Index includes a subindex that measures the state's bond rating against other states. The index has shown that Massachusetts consistently ranks between 22^nd and 28^th over the past five years. The Commonwealth's middle- of-the-pack bond rating doesn't impinge on the state's ability to remain competitive, that is to say to put in place policies that promote economic growth and sustain high levels of income for its citizens. Massachusetts, thanks to the strength of its high tech, finance and human resources sectors, tops our latest ranking. Nonetheless, our index does show that Massachusetts has room to improve (or stay near the top) and our bond rating is one thing we can control to some extent.

The Economic Impact

In isolation, House No. 4617 would have very little, if any impact on the state's ability to issue bonds or to the state economy. However, the bill would allow the legislature and put off unpleasant budgetary decisions in hopes that the extra time will allow the state budget deficit to shrink with a growing economy. A persistent and large budget deficit may tempt the Legislature to use debt restructuring again and again.

Bear in mind that outside factors come into play: 1) federal fiscal policy and 2) a demographic shift. FY 2012 may prove just as challenging as FY 2011 as federal stimulus money dries up and the 2001 and 2003 federal tax cuts expire. Tighter monetary policy, almost a sure thing given the very loose current policy, could also restrain economic growth.

In the longer term, the state cannot push into the future the payment of its relatively high debts indefinitely. Repeated debt restructuring could risk future downgrades to its bond rating and take place in an environment of higher interest rates in the bond market. Also, debt servicing costs would rise and begin to consume an increasing portion of state resources, inhibiting the state's ability to deliver services in the future.

Notes:
Governor Deval Patrick's Five Year Capital Investment Plan FY2010 - FY2014 "Existing Debt Burden" Administration and Finance (2009) http://www.mass.gov/bb/cap/fy2009/exec/hdebtafford_5.htm (accessed May 3, 2010).
² Massachusetts School Building Authority Annual Report 2008 – 2009 http://www.massschoolbuildings.org/uploadedFiles/Pressroom/Newsletters/2208.2009_Annual_Report.pdf (accessed May 3, 2010).
³ Massachusetts Department of Transportation, "Stakeholder Briefing," (October 2009) http://www.eot.state.ma.us/downloads/90_DayReport/briefing100609.pdf (accessed May 3, 2010).

Up in smoke: Cigar taxes to hurt local businesses

Governor Patrick wants to raise state taxes on cigars.

Jetmira Kaziu is the COO of Cigar Masters, a cigar bar and lounge in the Back Bay. As a smoking bar, by law, at least 60 percent of its revenues must come from tobacco sales. Kaziu is worried that if the excise tax increase passes, she will feel like she’s stealing from her customers because they could easily get their favorite cigars cheaper elsewhere. Maintaining that 60-percent requirement would be difficult.
Glance: Cigars Taxes

“We are in between two states, New Hampshire, which doesn’t have any tax, and Rhode Island, which has just a 50-cents tax,” Kaziu said.

“So that means that all my customers, they’ll buy their regular cigars from the states next to us or probably go online and buy them, and as such we might even go out of business … and obviously the employees thrown out on the street in this economy is not such a viable thing to do.”

Joe Corrado, a 24-year old bartender, is a regular at Cigar Masters. He’s there a couple times a week, spending $30-50 a week, and he says if the excise tax hike passes, he would still most likely be a fixture in the bar, but his habits would change.

“Where I’m smoking $10 to $12 cigars now, I might bump down to the lower grades,” he said. “Or alternatively, I have aunts and uncles and friends that make frequent trips to New Hampshire, 40 minutes away or less, they make a day of it and stock up for the month.”

The governor acts as if the law of diminishing returns doesn't apply to state tax revenues.

A wealth tax for the deficit?

ARNOLD KLING:

Other countries that have defaulted have not had the option of enacting wealth taxes. When you are in a banana republic with shaky government finances and you have a lot of wealth, you send that wealth over to the United States, where your government cannot get to it. That "safe haven" motive is what keeps the dollar so strong. Anyway, by the time the banana republic gets around to enacting a wealth tax, all the wealth has fled the country and there is nothing left to tax. So the banana republic defaults.

Gordon Brown's upcoming pluck of the goose: Britain raises marginal rates

We knew all along that Gordon Brown was no Maggie Thatcher! Here's the unvarnished Brown, class warrior.

JEAN-BAPTISTE COLBERT, Louis XIV’s finance minister, famously said that the art of taxation was like plucking a goose; the aim was to get the most feathers with the least hissing. But tax policy should aim to do more than smother protest: it should also seek to raise the most money with the least distortion to economic activity.

By this measure, Britain’s attempts to fill the fiscal gulf created by recession are a dismal failure and a lesson to cash-strapped governments everywhere. Take marginal income tax rates, announced in the British budget of April 22nd. Once national insurance is added in, effective marginal rates will climb from 31.5% to 41.5% through to 61.5% on those earning just over £100,000 ($147,000), thanks to the withdrawal of the personal tax allowance. After that, the rate will fall back to 41.5%, before rising again to 51.5% on incomes over £150,000.

The bizarre incentives of income tax are only the start. High earners also face the withdrawal of tax relief on their own pension contributions and a tax charge on the “benefit-in-kind” provided by employers’ payments into their schemes. Depending on how much the employer contributes, this will push marginal rates well above 50%. It will also discriminate against employees in defined-contribution, or money-purchase, schemes where employers match what workers put in. But the effect is not uniform; the convoluted rules will mean some high earners will get more tax relief on their contributions than they did before. What a mess.

As recently as 2006, the government drove through a reform of the pensions rules that simplified a notoriously complex system. Employees could, in effect, make pensions contributions when they felt flush and still get tax relief. Those reforms were a much-needed incentive for employees to build up their pensions at a time when many employers were abdicating responsibility for providing a decent income in retirement. The new rules return pensions to the complexity of string theory.

The best tax systems combine low rates with minimal exemptions. Businesses and citizens should be making decisions based on their economic opportunities, not the advice of their accountants. But Gordon Brown is too clever by half. He introduced a sliding scale that made capital-gains tax highly complex, and then reversed himself, introducing a single rate of 18%. The effect was both to raise the tax rates for sellers of small businesses and to introduce a vast discrepancy between the tax rates on capital and income. An attempt to introduce a levy on foreign workers (known as non-doms) was botched, and may yet drive many high-earners out of the country.

These wheezes were designed chiefly with politics in mind: all those nasty plutocrats deserved a hammering. By putting economics second, Mr Brown has made it harder to balance the books. Waste and lower growth because of poor tax policy will only make the fiscal hole harder to fill. The new tax will do little to reduce Britain’s budget deficit. On the government’s own forecasts, which assume the wealthy will not change their behaviour, the assault on the rich will raise just £7 billion. With avoidance, the tax will raise still less

A higher top marginal tax rate of 61.5% above $147,000 is going to sock a lot of people.

Against the grain! A trillion here or there won't help.

A new year of magical thinking.

"The best thing the federal government could do now is avoid the phony Obama tax cut and not increase spending at all. It's time for the Senate Republicans to step up."

David Henderson explains why in Forbes. The rest of us may know why the Republicans can't step up.

Biodieseling: the mirage of energy independence.

In May 2005, President Bush signed legislation creating federal subsidies for domestic biodiesel production. Along with supporters of biofuels, the President argued:

“... every time we use homegrown biodiesel, we support American farmers, not foreign oil producers.”

The reduction of baseline oil imports was a goal of the $1 per gallon tax credit, funded mainly though debt and the income tax payments. However, as is the case with most government-induced price distortions, unforeseen consequences came into play.

In 2007 almost 60% (291 million gallons out of 490 million gallons) of domestic production was exported. In the first eight months of 2008, an estimated 511 million gallons out of the 600 million gallons of biodiesel were exported rather than consumed domestically.

This means that $600 million was spent to replace 89 million gallons of oil. Since we import about 60% of our oil, we reduced our "foreign oil dependence" by 52 million gallons or a cost of about $11.54 per gallon, which seems to be hardly cost-effective.

HT: The Houston Chronicle

BHI Releases Question 1 Study

On Tuesday BHI released a new study on the impacts that Question 1 would have on state residents. The majority of the current research on the effects of the elimination of the state personal income tax looks at an all or nothing case, with both sides arguing that the others vote would lead to lower economic outcomes.

The real world, especially politics, rarely operate with black or white but more often gray areas. Using this rational we examined cases where the Commonwealth could cut line-item spending to that of comparable states, thereby supplying the same amount of services of states such as New Hampshire, Colorado and Texas and increasing other taxes. This template could be used by the legislature to get though the income tax elimination, should voters support the ballot measure, and expand the economy.

The cuts in service to comparable states levels accounted for 70% of the lost income tax revenue. The remaining 30% is made up thought cost cuts (amending the state Prevailing Wage Law) and higher sales and property taxes.

These adjustments would enable the economy of Massachusetts to grow by 80k jobs and increase disposable income per household by $1,461.

Another Failed Government Stimulus Program

Martin Feldstein says the last federal stimulus plan didn't work nor will a future stimulus plan or tax rate increase:

The small rise in spending in response to these tax rebates is similar to what previous studies of one-time tax cuts found. It also corresponds to what both basic economic theory and common experience imply. Although someone who receives a permanent annual salary increase of $1,000 typically would increase his annual spending by an almost equally large amount, a $1,000 rise in wealth caused by a share price increase or a tax rebate would raise spending only gradually over a number of years.

All of the evidence on one-time tax rebates implies that the Obama plan to send $1,000 rebate checks would do little to raise consumer spending and stop the decline in employment. If the past is an indicator of what would happen, the $65 billion he proposes to spend on this plan would raise consumer spending by only about $10 billion, or less than one-tenth of 1% of GDP.

The distinction between one-time tax rebates and permanent changes in net income is also important for the debate about Mr. Obama's proposal to raise income and payroll taxes. Because those tax increases would be permanent, they would cause a substantial reduction in consumer spending and aggregate demand. Moreover, as taxpayers begin to focus on the possibility of such a future tax hike, they will reduce spending without waiting for such legislation to be enacted. If Mr. Obama is looking for a way to stimulate the economy, he could begin by discarding his proposal to increase future taxes.

Here is more on Senator Obama's tax plans.

HT: Greg Mankiw

Good Sign from the Senate

In 2006, the Massachusetts General Assembly created a 25% tax credit for film production companies to shoot films in Massachusetts. The legislature believed that this tax credit would attract new business and create jobs in the Commonwealth. However, other states have joined in the act and a film tax credit "arms race" has erupted to see who can offer the biggest subsidies to the film industry.

Remarkably, the Massachusetts Senate has declined to take up the film industry tax credit bill. Senate President Therese Murray said the bill was "not on top of our agenda" as the legislative session ends next Thursday.

Subsidies such as tax credits distort the natural marketplace by favoring one industry over another. BHI suggested that Massachusetts simplify and lower the corporate tax rate to help all industries, not just the film or biotech industries. A uniform, lower tax rate will attract business to Massachusetts. Kudos to the Senate for rejecting this unnecessary tax giveaway.

Cost of Goverment Day for Massachusetts

It took Americans until July 16 to pay for the total costs of federal, state, and local government according to Americans for Tax Reform. Grover Norquist "Happy Cost of Government Day" noted that it took until yesterday for Americans to pay federal taxes, state and local taxes, and pay the costs associated with federal regulations, and state regulations. Residents of Massachusetts are still paying though, they won't have paid for all governmental costs until July 21. By this estimate, people in the Bay State work 202 days to pay for the government.

The Tax Foundation does a similar, less subjective study, looking at federal and state and local taxes to determine the Tax Freedom Day. Massachusetts celebrated Tax Freedom day on April 28. The Bay State paid five days more worth of taxes than the national average (April 23).

The costs of regulations are significant. Government regulations add so much to the tax burden, that Massachusetts taxpayers have work an additional 89 days just to pay for regulations.

Senator Obama's Capital Gains Tax Plan

Presumptive Democratic presidential nominee Senator Barack Obama (D-IL) supports raising the capital gains tax from 15% to 25%, an increase of 67%. Economic growth is determined by a nation's investment in both human and physical capital. An increase in the capital gains tax will reduce investment in the stock market and reduce future economic growth.

Many believe that an increase in the capital gains tax will only affect the "wealthy" or Wall Street stockbrokers. However, virtually all citizens are affected by an increase in capital gains taxes. Pensions and 401k plans are directly affected by the capital gains tax and the direction the stock market takes in response to the tax. All citizens are affected by lower economic growth that results from low investment. If Senator Obama wants to raise the standard of living for Americans, he should abandon his plan to raise the capital gains tax.

Sales Tax will Mean Trouble for Chicago, Part II

Kate Sheehan has already explained one obvious problem with Cook County's (IL) decision to increase its sales tax to 10.25%. However, economists know that there are always unforeseen economic effects to government policy. Could Chicago's sales tax have an unseen, harmful effect on its servers in the restaurant industry?

A reader made this point at the new Nudge blog written by Harvard Law Professor Cass Sunstein and University of Chicago economist Richard Thaler, who coauthored a book by the same title.

A common practice for restaurant tipping is that a diner uses the sales tax to determine the waiter's tip. For example, with a 5% tax in Massachusetts, diners generally triple or quadruple the sales tax to pay a waiter the standard 15-20% tip. The Nudge reader, who generally doubled the sales tax to figure out his waiter's tip, said he would reconsider this practice after the sales tax increase would raise the tip to a higher level than usual. The reader correctly notes that this may reduce a typical waiter's earnings with careful consumers who analyze their bills. As a result, servers will lose some of their income and purchasing power.

Not surprisingly, this is another example of a government policy that will produce unanticipated effects that harm the local economy.

Other reasons to flee

Edward Moscovitch argued in a Herald op-ed last week that the exodus of young people from Massachusetts has nothing to do with our high taxes.

Citizens for Limited Taxation's Barbara Anderson replied on Monday arguing that taxes are indeed the problem

I replied on Wednesday arguing that taxes and land-use regulations are the problem.

Simplify Tax Code to Boost Economy

In March, Congress passed the Recovery Rebates and Economic Stimulus for the American People Act of 2008. The bill was designed to stimulate the sluggish American economy.

In Sunday's Worcester Telegram and Gazette, I proposed a better way to stimulate long-term economic growth. The T&G liked my letter so much it named it "Letter of the Week."

Simplify tax code to boost economy

LETTER OF THE WEEK


U. S. Rep. James P. McGovern, D-Mass., said, “It’s their money and they need to decide how to spend it,” in response to the rebate checks currently being issued by Congress (“Found money,” Telegram & Gazette, June 26).

However, Mr. McGovern and his colleagues could better help the economy now and in the future by simplifying the tax code.

Americans have to waste millions of dollars and hours each year trying to figure out how to pay their high taxes.


Simplification of the tax code would leave more hard-earned tax dollars in taxpayers’ pockets, leading to higher economic growth and negating the necessity of these election-year economic stimulus packages.

JOHN MACEK III

Recent Prop 2 1/2 Votes on Google Maps

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Green: Passed
Yellow: Mixed Pass/Fail
Red: Failed

Sales tax will mean trouble for Chicago

Last February, the Cook County Board voted to raise the sales tax to 10.25%. The increase went into effect yesterday giving Chicago the highest sales tax rate in the nation -- higher than New York City and Los Angeles. Supporters of the tax hike argue that the increase will bring in an additional $440 million. But is this a realistic estimate? Since higher taxes create a disincentive, I would bet against that optimistic estimate. That's because consumers will take their business elsewhere, particularly when planning to purchase big ticket items such as appliances, furniture, electronics and professional services.

As Old Town resident David Ashamalla told CBS News, "It's kind of frustrating. I go to Best Buy or something, and high-priced electronics – it adds like $20, $30 to a TV I bought."

Every textbook used in every college public finance class recognizes two overriding principles of taxpayer behavior: (1) Higher tax rates exert a combination of positive and negative effects on economic behavior. And (2) the negative effects exceed the positive effects insofar as it is easy for taxpayers to avoid paying the higher taxes and insofar as the tax takes a bigger bite out of taxpayer income or buying power.

Moreover sales taxes are regressive. That is to say they fall more heavily on the poor who must pay more of their income for high taxed goods and services. While the revenue estimates are open to question, there's no doubt that retail sales will be rough in Chicago and Cook County. Lake County, Indiana get ready for a wave of Chicago shoppers!

Stop the Loopholes

The Boston Globe recently weighed in on the current corporate tax reform recommending that "simplifying and lowering the corporate tax rate" would induce businesses to “locate and expand in Massachusetts.”

In its study of business taxation last April. the Beacon Hill Institute recommended cutting the corporate income tax to 5.3% and making it uniform for all corporations. Simplification and reduction in the corporate income tax would provide the necessary stimulus to grow the Massachusetts economy. It would also send a message to business that the new, slimmer code and rate would be predictable and unencumbered by exceptions. The House and Senate corporate tax bills took a pass on BHI's suggestions. There's always a next time, when the legislature may discover that its current edition of corporate tax reform doesn't go far enough.

Massachusetts House Approves Cigarette Tax Hike

The House has just passed a $1 tax hike on cigarettes in what I am calling An Act to Benefit New Hampshire Border Convience Stores. This brings the total cigarette tax to $2.51. Massachusetts will soon have the 3rd highest cigarette tax in the country.

Economists call this a positive cross-price elasticity of demand. It's a fancy way of saying that when the price of cigarettes increases in Massachusetts people will go to New Hampshire, where cigarettes are much cheaper, to buy a carton.

And with gas prices surpassing $4/gallon, you can expect people to do the rest of their shopping in sales tax free New Hampshire while they're up there.

This means less business for Massachusetts convience stores and longer drives for Massachuetts consumers. The only winner here is convience stores and markets near the New Hampshire border.