Patrick stresses upside of tax hikes

By Matt Viser
Globe Staff / June 27, 2009
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Governor Deval Patrick said yesterday that he will sign more than $1 billion in tax increases, ending a months-long standoff with the Legislature and ensuring Massachusetts residents will pay more for everything, from satellite dishes to cheeseburgers.

Patrick’s announcement, coming after the House and Senate overwhelmingly approved the tax increases last week, means that the state sales tax will rise for the first time in a generation, and at a time when many residents are losing homes and jobs.

The new sales tax rate, which will increase from 5 percent to 6.25 percent, will go into effect Aug. 1.

“I will approve the new revenues we need to bring our budget into balance, offset the need for even more difficult cuts, and expand opportunity throughout the Commonwealth,’’ Patrick said in a statement. “Due to the economic challenges that all states are facing, this new revenue is necessary to prevent us from losing ground on our long-term goals in education and healthcare, and further straining safety net services that are struggling to meet the increased demand.’’

About $275 million in projected new sales tax revenue will be directed to the state’s transportation network, preventing planned toll increases on the Massachusetts Turnpike, at least for now. The sales tax revenue will also help shore up finances at the Massachusetts Bay Transportation Authority, although it might not be enough to head off a fare increase.

The statewide meals tax will also increase, from 5 percent to 6.25 percent, and municipalities will have the option to raise it up to 7 percent and keep the extra revenue for themselves. In addition, taxes will go up on satellite television users, and a sales-tax exemption on alcohol sold in retail stores will be eliminated. Municipalities will also be allowed to raise the local hotel tax by 2 percentage points.

“It’s going to hurt small businesses, and it’s going to hurt consumers,’’ said Jon B. Hurst, president of the Retailers Association of Massachusetts.

Patrick had earlier argued for targeted taxes on items such as candy and soda, and a 19-cents-per-gallon increase in the gasoline tax. None of those proposals were embraced by the Legislature, which instead turned to the state sales tax to raise an additional $900 million a year.

“There’s no fiscal crisis of the last 50 years that hasn’t had both major spending cuts and a broad-based tax increase,’’ said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, a business-funded fiscal watchdog group. “In that context, the sales tax, I think, was predictable because of the size of the revenue collapse.’’

Patrick had said he would agree to the lawmakers’ plan only after they agreed to overhaul the state’s ethics, pension, and transportation laws significantly. Over the past two weeks, House and Senate lawmakers approved plans on each of those items, all but forcing the governor to sign on to their tax proposal.

Patrick’s decision will provide fresh state revenues to offset deeper budget cuts, but it could hurt him at the ballot box next year. The way he made the announcement - in a quiet statement at 4:23 on a Friday afternoon - said much about the political risk.

Still, Massachusetts has one of the lowest sales tax rates in the country, and exempts several items from the tax, such as food, and clothing that costs less than $175. The state passed a 3 percent sales tax in 1966; it was increased a decade later to 5 percent, where it has remained.

The tax proposals are included in the $27.4 billion state budget for the next fiscal year, which begins Wednesday.

Patrick also signed legislation yesterday to overhaul the state’s ailing transportation network, abolishing the Turnpike Authority and consolidating a patchwork of agencies that govern roads, rail, and bridges.

The bill, a key part of what Patrick is calling his “reform agenda,’’ creates a new state Department of Transportation that will oversee highways, mass transit, aeronautics, and the Registry of Motor Vehicles.

Matt Viser can be reached at