In an effort to stave off draconian cuts in vital public services in the face of plummeting revenues, the Massachusetts House of Representatives this past week passed a bill to increase the state's sales tax rate from 5.0 percent to 6.25 percent. If enacted into law, the bill is expected to generate some $900 million in additional revenue each year.
The bill's fate in the Senate is unclear at present, but what is clear is that the Senate should modify the bill to mitigate its impact on low-income individuals and families. For instance, the Senate could use some of the revenue that the rate increase would produce to enhance one of two features of the Massachusetts income tax designed to ease poorer families' tax responsibilities.
Like more than 20 other states, Massachusetts offers a refundable Earned Income Tax Credit (EITC). The BayState's EITC is set to 15 percent of the federal credit, which is now well below the level of the credit provided in several other Northeastern states. (Vermont's version of the credit is 32 percent of the federal, New York's is 30 percent, and New Jersey's is 25 percent.)
In addition, Massachusetts allows elderly taxpayers to claim a refundable "circuit-breaker" credit to ensure that the property taxes they pay do not exceed a given level of income. A number of states allow non-elderly taxpayers, as well as seniors, to partake of similar credits.
Expanding either one (or both!) of these credits would, in effect, help to keep an increase in the sales tax from imposing too great a tax responsibility on those Massachusettans struggling to make ends meet.
For more on Massachusetts' fiscal situation, visit the Massachusetts Budget and Policy Center's informative web site.