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Senate approves sales tax hike

6.25% levy would include alcohol; margin veto-proof in both chambers

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By Michael Levenson
Globe Staff / May 20, 2009

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The state Senate voted last night to increase the sales tax, lift the sales tax exemption on alcohol, and allow cities and towns to raise meals and hotel taxes, brushing aside criticism that higher taxes would hurt Massachusetts businesses by driving consumers over the border, particularly to tax-free New Hampshire.

The Senate plan, which cleared the House in April, would push the sales tax from 5 percent to 6.25 percent, while generating an estimated $633 million to offset deep cuts in services for the poor, elderly, and disabled.

Lifting the sales tax exemption on alcohol sold at package stores would raise another $80 million for those services, senators said. Allowing cities and towns to impose a 2 percentage point increase in taxes on hotels and restaurant meals will help offset cuts in state aid to municipalities, senators said.

At 6.25 percent, Massachusetts would have the second highest sales tax rate of the six New England states plus New York. Only eight states nationwide have a higher rate.

Governor Deval Patrick has threatened to veto any broad-based tax increases, unless the Legislature also overhauls the state transportation agencies, pension system, and ethics laws.

His aides were not available for comment last night, but his threat carries little weight because of the vote tallies.

The Senate voted 29-10 in favor of the sales tax increase, joining the House in mustering a veto-proof majority. Senate President Therese Murray described the sales tax increase as the least punitive of tax options needed to restore services for the most vulnerable.

"I think this is probably the more fair way to go if we have to raise revenue and, unfortunately, we have to raise revenue," she told reporters after the vote. She said that although the budget's proposed cuts will not be completely reversed, there will at least be "some money put back into those programs."

Money from the sales tax increase, senators said, would be spent on a multitude of services. Among them: $4 million for summer jobs for at-risk youth, $5 million for workforce training, $6 million for regional tourist councils, $36 million for special education, and $10 million for rental housing assistance to enable 1,700 families to stay in their homes.

Senator Gale D. Candaras, a Wilbraham Democrat, seemed to speak for the Democratic majority when she declared on the floor that there was "absolutely no good card in the hand," when it came to raising taxes.

Still, she said, "this sales tax will fund a lot of very important programs, at least in part for some of the most vulnerable citizens."

Opponents warned that a higher sales tax would hurt the state's ability to recover from the recession.

"Maybe we should call this the New Hampshire economic stimulus bill," Senator Robert L. Hedlund, a Weymouth Republican, said with sarcasm.

Of the five sates bordering Massachusetts, only Rhode Island, at 7 percent, has a sales tax rate above 6.25 percent. Massachusetts, however, does not impose sales taxes on groceries, clothing under $175, and prescription drugs.

The Retailers Association of Massachusetts cited a study by the Beacon Hill Institute in warning that a 6.25 percent rate would cost the state 12,600 jobs.

"What you get right now are actually a lot of consumers from Rhode Island, Connecticut, and New York coming into Massachusetts and purchasing here," said Jon B. Hurst, president of the Retailers Association. "Not only is that incentive going to be gone, but we're going to create an incentive for our own consumers to head to New Hampshire and, just with a couple clicks of the mouse, go on the Internet, all tax-free."

Mayor Thomas M. Menino applauded the Senate for voting to allow cities and towns to raise taxes on hotel rooms and restaurant meals.

He said the measure, which has not cleared the House, could raise $47 million to help Boston reduce its reliance on property taxes and state aid.

"We need different, more innovative tools to manage costs and diversify revenues at the local level," Menino said in a statement after the Senate vote. "I hope that members of the House will also support this crucial reform."

Earlier in the day, a proposal to raise the state income tax from 5.3 percent to 5.95 percent was defeated. Supporters argued it was fairer than the sales tax and would raise $1.3 billion annually.

Opponents said the measure would drain household budgets and hurt small businesses.

The Senate also voted 33 to 6 against the governor's proposal to raise the gas tax by 19 cents and later defeated an 11-cent increase in the same tax.

The alcohol tax was approved with support from lawmakers who said it would raise $15 million to ameliorate what they described as a heroin epidemic in Massachusetts.

"When we have an addict, we'll have a bed for them," said Senator Steven A. Tolman, a Boston Democrat. "This money will help us put these beds on line."

The Senate approved the tax increases on a day of furious lobbying and wrangling behind closed doors.

Hundreds of demonstrators, including many in motorized wheelchairs, with developmental delays, and using guide dogs and canes, jammed Beacon Street early in the day, calling on legislators to raise taxes and "save our services."

"Families will be devastated if this budget passes!" declared Gary Blumenthal, executive director of the Association of Developmental Disability Providers, eliciting cheers and applause from the crowd.

Michael Levenson can be reached at mlevenson@globe.com.