April 14, 2003
consumption taxes discriminate against low income taxpayers, particularly
working women and inner city workers.
A new study released today by the Beacon Hill Institute and authored
by Cornelius J. Chapman, Jr. calls for the creation of Individual Withholding
Accounts (IWAs) that would permit residents of the Commonwealth to earn
interest on state taxes withheld from their paychecks.
of the withholding feature of federal and state tax law, wage earners,
in effect, provide an interest-free loan to government with every paycheck.
In contrast, taxpayers with unearned income or who receive their wages
in the form of partnership distributions, make estimated tax payments
on a quarterly basis and get to hold onto their money until these payments
come due. By letting taxpayers put their withheld state taxes into an
IWA, the state could remove this discrimination against wage earners.
At 2% interest, that would mean that state taxpayers would have an estimated
$18.9 million more in their pockets today, tax day.
titled, The New Sumptuary Laws: How Massachusetts Consumption Taxes
Keep the Poor Poor, argues that the state could dramatically improve
the lot of its poor and bring greater fairness to the tax system by
creating IWAs and by reducing or eliminating the sales tax and certain
other consumption taxes.
5% sales tax, argues Chapman, is akin to the sumptuary taxes of colonial
Massachusetts, which sought to discourage upward mobility on the part
of the poor. ·Just as the wealthy among the earlier residents
of the Commonwealth tried to prevent the poor from becoming rich, today·s
sales tax discriminates against low-income taxpayers,· said Chapman.
Taxpayers with before-tax incomes less than $30,000 pay more than 2%
of their income in sales taxes. Those with before-tax incomes of $70,000
or more pay less than 1% of their income in sales taxes.
also takes aim at the state·s automobile excise tax and the sales
tax on motor fuel. These taxes discriminate against the inner city poor
who increasingly depend on automobiles to find jobs in the suburbs.
consumption taxes increasingly discriminate, as well, against working
women. While groceries are exempt, restaurant meals are taxed at 5%.
Working women, especially working mothers, are finding less and less
time to dine on tax-exempt groceries and finding it more and more necessary
to take their meals in restaurants or at take-out food outlets.
a more equitable tax system, the study makes four recommendations:
the burden of income tax withholding by creating IWAs. Employers would
place withheld funds in an interest-paying account, from which the Commonwealth
would draw tax payments on a quarterly basis. Once the worker·s
IWA had been debited for its quarterly payment, the worker would get
back the unused funds and interest. This would eliminate a feature of
current tax law that favors unearned over earned income, and high-income
professionals over hourly-wage earners.
or eliminate the sales tax. The state collected $3.7 billion in FY 2002
from the general sales and use tax, which amounted to 25.8 percent of
total state tax revenues. Owing to the regressivity of the sales tax,
reducing or eliminating the sales tax would be more beneficial to low-income
than to high-income taxpayers. Massachusetts consumers would spend more
and would shift their spending from New Hampshire, which currently has
no sales tax, to Massachusetts, thus attenuating the loss in revenue
to the state.
the sales tax rate while broadening the base to make it more neutral
with respect to different consumer goods and services. For example,
the state could help working women by cutting the rate on restaurant
meals and take-out foods, even while it broadens the base to include
groceries. It could help low-income workers get to their jobs by cutting
the rate on currently-tax items, including car tires, while broadening
the base to include cable TV and rare coins, for example.
automobile excise tax on the actual price paid rather than on the manufacturer·s
list price, and eliminate the sales tax on purchases of used cars. Both
measures would make automobile transportation · and the jobs
that increasingly require such transportation · more accessible
to the working poor.
J. Chapman is an attorney in private practice in Boston. He has written
widely on public policy issues including education, public transportation,
government contracts and sales taxes. He is a published and performed
playwright, and is the author of The Year of The Gerbil, a history of
the 1978 Red Sox-Yankees pennant race.
Revised formatting on 2/24/05 12:07 PM