They Just Don't Get It

The news over the recent Massachusetts House vote (108-51) to raise the state sales tax from 5% to 6.25% is laughable. I’m a bit dumbfounded to believe we have arrived at a point where our state legislature sees this measure as a tool in their belt to help mend a severely increasing budget deficit.

To put this increase in perspective, we can look towards the monetary policy of our Federal Reserve System. As we have shifted into a recessionary environment, you have seen our Federal Reserve consistently reduce the federal funds rates. The Federal Open Market Committee (FOMC) make policy decisions to cut rates in order to provide liquidity into the financial system and improve credit conditions to achieve the most viable level of economic growth. An increase in the federal funds rate is used to curb economic growth and contain inflationary pressures so that economic expansion can be sustained over the long-term. It is this same responsible and accurate reasoning that should be used to analyze this proposed sales tax increase. It helps explain why the Massachusetts House is making a poor decision in the short and long-term.

When pressure increases on consumers, you must enact measures to promote spending. It’s consumerism 101. Supporters say they will raise $900 million by increasing the state sales tax. If Massachusetts’ consumers take this increase seriously, it is quite possible that they could cut personal spending to a level that offsets the anticipated $900 million.

Now the Governor isn’t without fault here either. As has often happened during his tenure as Massachusetts Chief Executive, Governor Patrick seems to say the right thing but falls short of delivering actionable results that match his lofty words. He recently stated, “Before we consider any broad-based tax increase, we must first regain the public's confidence in government's ability to steward public funds wisely.” He’s absolutely right but does anyone really believe he can do it? The Governor has had ample time to be a leader and great steward of public funds. Remember nearly 1 year ago when Governor Patrick put forth a $28 billion FY09 budget laced with unnecessary spending initiatives? Then when cracks began to appear in our financial system in September of 2008, all of a sudden the Governor turned the page and initiated $1 billion in budget cuts. Those proposed cuts grew as the crisis advanced and it further solidified the public’s belief that our elected officials are solidly behind the problem-solving curve. The Governor and the Massachusetts General Court must be responsible stewards of taxpayer funds at all times, not just in the face of a crisis. Unfortunately, their actions continue to prove that they just don’t get it.