If Tech Levy Goes, Budget Fix Might Not Include New Taxes
Top House and Senate Democrats were silent Wednesday on the issue of whether they agree with Gov. Deval Patrick’s new call to repeal and replace a controversial sales tax on software design services, but the governor said he believes the Legislature is “trending” in that direction.
With the governor’s top priority being to plug any hole in the $34 billion state budget created by repeal of the $161 million tax, a leading business advocate and vocal critic of the software tax said he has recommended that lawmakers turn to one-time money earmarked for reserves to cover the gap, at least for this year.
“I think there is consensus that it ought to be replaced … in the leadership, but how it will be replaced I don’t know,” Patrick said Wednesday morning, a day after vocalizing his support for repealing the tax he once proposed. Patrick later clarified, “I shouldn’t presume to speak for the legislative leadership on the question of repeal. I think that’s the way this is trending.”
Momentum has begun to swell behind efforts to repeal the tax included in a transportation and budget financing package that passed the Legislature in July over Patrick’s veto. Estimated to generate $161 million in new revenue, repealing the software tax would shift the fiscal 2014 budget out of balance, but would not shrink the new financial commitment to transportation, which was supported with other revenues and accounting changes.
House Speaker Robert DeLeo and Senate President Therese Murray have declined to comment since Patrick reversed course on the software tax Tuesday, joining a chorus of Republicans and business leaders in calling for the tax’s repeal.
Aides to both DeLeo and Murray have referred questions back to a joint statement released last week after a meeting with Patrick and technology business leaders, in which the Hill’s top Democrats called the meeting informative and promised to continue the dialogue with lawmakers.
Patrick said he had some ideas on how to replace the lost revenue, but declined to share. “There are a number of different ideas that some of the business leaders have proposed. I know they’re being muddled down the hall. I just don’t know where that’s going to land,” Patrick said.
Calling the vote taken by lawmakers earlier this year for higher taxes tough, Patrick distanced himself from the notion that he might prefer another broad-based tax increase to replace the software tax. “I think that folks are going to be trying to look for a solution that doesn’t require asking for more from the public,” he said.
Michael Widmer, president of the Massachusetts Taxpayers Foundation, said his group was focused on a solution that would either take $150 million from the half-billion dollar fiscal 2013 surplus, or earmark the first $150 million in one-time corporate tax settlements in fiscal 2014 for general budget spending. Both scenarios essentially rely on taking money that would otherwise go into the state’s $1.6-billion rainy day fund, he said.
“There’s just no way we’ll get consensus around any new taxes or fees,” Widmer said.
Secretary of Administration and Finance Glen Shor told municipal leaders Tuesday that state tax collections are $139 million higher than estimates during July and August, including a more than $70-million one-time settlement. Budget officials say it’s too early to know if strong receipts are a trend or luck two months into the fiscal year.
Patrick and legislative leaders are talking with business leaders, but appear to still be stung by the business community’s shift from initially supporting the transportation financing package that included the software tax, to vehement opposition of the tax. The governor went so far Wednesday as to suggest business leaders could have helped him sustain his veto of the bill if they were so concerned about the tax, but missed that opportunity.
“Some of the people who were advocating that we reconsider this were advocating then that it be passed and that it be passed over my veto, so I think a lot of us have evolved over time and we’ve done that by listening and that’s a good thing,” Patrick said.
While business leaders like Widmer, Associated Industries of Massachusetts and the Massachusetts High Technology Council offered initial statements of support for the framework of the financing plan put together by lawmakers in April, they also raised concerns about the tech tax weeks later, before the House and Senate voted, and said it was not the preferred means of generating new revenue.
Patrick said mixed messages from business leaders during debate “does contribute to the political dynamic around here.”
While the consensus is that DeLeo and Murray are loathe to reopen a tax debate, their silence has left people guessing what the next step will be. The House and Senate have been on a long summer break, with the last formal sessions occurring in late July. Senators were due to return to the Hill today for a formal session.
Sen. Jamie Eldridge, an Acton Democrat and strong supporter of Patrick’s push for an even larger tax package, said he’s open to repealing the software tax as long as the revenue is replaced with another source of funding.
“I certainly recognize and have heard from a number of constituents that the implementation of this tax has become very complex and is difficult to understand, so I would support finding another revenue source, one that’s a more progressive tax to replace this tech tax. I’m comfortable with that. The question is, Will my colleagues be willing to take that vote?’” Eldridge said.
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