It’s Time to Fish or Cut Bait

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I get it…  State legislators have a very difficult job.  They are often required to legislate on a wide range of issues, and – as usual – there is never enough time to research issues as thoroughly as they would like.   And once they have finished that bill, it is off to the next issue and there is little interest in re-examining a completed task.

But the time has come for the Legislature to take a stand.  As part of the Expanded Gaming Act, the Legislature created the Race Horse Development Tax, a nine percent (9%) surtax on gaming revenues for a Category 2 (slot parlor) licensee.  The proceeds from this tax were to be used to subsidize and as a catalyst to revitalize the horse racing industry in Massachusetts.  However, the Legislature made no provision as to how those funds would be administered.

Several weeks ago, in a letter to the Legislature, the Massachusetts Gaming Commission (MGC), expressed its position that the Legislature should give control over the Race Horse Development Fund and other racing revenue streams to the MGC.  Giving control over the disposition of those funds to a board of five commissioners who know the industry makes perfect sense, if the goal of the Race Horse Development Tax is truly to save the horse racing industry in Massachusetts.  But now the Legislature is considering a proposal to raid the Race Horse Development Fund to assist in closing a projected budget shortfall.

Since its inception, the tax has generated almost $28 million, which is a drop in the bucket when compared to the Commonwealth’s $40 billion budget.  But not for Plainridge Park Casino, who earned the money to be taxed or for the race track and horse owners who may have anticipated the subsidy.  Diverting tax revenues, meant for a specific purpose, due to economic necessity is somehow wrong.  But we see this happen over-and-over again with the unclaimed bottle deposits, which are periodically raided to close a budget shortfall.

The Legislature should allow the funds to be used for their statutory purpose, and if not, then perhaps it is time to repeal the Race Horse Development Tax or, in the alternative, at the very least permanently amend that statute that will allow it to be used for other purposes, such as a allocating the proceeds of the tax to the Commonwealth Stabilization (rainy day) Fund.

 

 

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Who Really Pays the Taxes in America – Part I

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Who pays the taxes here in America, or at least in Massachusetts?  A pretty simple question and, based on people’s background and experience, you can get some very different answers.  But I’m not talking about personal income taxes.  I’m talking about corporate taxes.  Most people will say corporations.  But I think that the answer is not a clear cut as we would think.  Most businesses charge a certain price for the goods and services they provide.  The price they charge covers the cost of production and overhead and generates a reasonable (hopefully) profit.  When a stress is placed on their cost structure, prices are increased to cover that added “cost” and maintain their profit margin.

A couple of years ago (2008) we were home watching Governor Patrick’s State of the State Address.  In that address, Governor Patrick made the predictable statement

“Large, multi-state companies, who create opportunity for so many, must help by learning to live in Massachusetts by the same tax rules they live by everywhere else.  Even the telephone company must help by paying its fair share of local property taxes so that communities can ease the property tax burden on seniors and on others of limited income.”

And, of course, a majority of members of the Massachusetts legislature gave Governor Patrick a standing ovation.  My daughter turned to me and said “the telephone company doesn’t pay real estate taxes?”  A good question…  I explained to her, the telephone company does pay real estate taxes.  Here in Massachusetts, almost every town has a little, red brick building in or near the town center with the words “Verizon” or “New England Telephone” emblazoned across the front of it.  This is a local exchange switching station that routes almost all of the landline telephone calls in that area.  Local assessors assess the value of that building the same as they do every other piece of commercial property in that town, which in turn generates a real estate tax bill which is sent to the telephone company, and they in turn remit payment to the municipality.

What Governor Patrick was referring to was the telephone poles, overhead wires, underground conduit and fiber optic cables, and manholes that are owned by the telephone company (or cable company, or electric power company) that make up the telephone company’s outside plant.  Cash strapped cities and towns, hampered by the provision of proposition two and a half are always looking for ways to generate additional income.  So for a few years, they have been clamoring to have the legislature authorize the assessment and taxation of these corporate assets.  After listening to my rather long-winded explanation, my daughter said that she thought that was “fair.”  I explained that it was not fair, nor, quite frankly, was it intellectually honest because that cost would be passed on to the citizens and taxpayers of those towns.  She, of course didn’t believe me.

A little over a year later, we were having coffee on a Sunday morning and reading The Boston Sunday Globe and in the Consumer Alert column, there was the following letter:

“I have Verizon phone, TV and Internet package and noticed starting with my March bill that there was a $1.26 charge for “voice additional services”…  In the March bill “questions and answers” section, there was a note about the Massachusetts Property Tax Recovery Surcharge.  It read “These fees are intended to help defray the cost of a new local property tax that Massachusetts cities and towns now levy on Verizon’s telephone poles and wires located on public property.”

So what began with wild cheers as an effort to make the telephone company pay their “fair share” actually ended up as a back door tax increase for the people of Massachusetts.  But the Governor and legislature had to know that this would happen.  Shouldn’t they?  If they did not know, that’s bad.  If they did know, but mischaracterized the nature and consequence of the tax increase, that’s worse.

Isn’t it the same way with all regulatory cost and tax increases?  As government increases regulation and, therefore, costs on business, then in order to maintain their marginal profit, the cost of goods that they sell and services they provide will increase accordingly.