The Union Leader (UL) ran a story today about the effects of Question 3 in Massachusetts. Question 3 would reduce the Bay state’s sales tax to 3 percent from 6.25 percent. The UL story predominantly centered around the reduction in cross-border shopping from Massachusetts to New Hampshire.
However, I’m surprised no one in the story mentioned the real problem with the sales tax–it is a tax on investment. For instance, a hammer can be used by an individual or a business. To the individual its consumption, but for the business its an investment. For more on this issue see this important study by the folks at the Council on State Taxation.
Therefore, a lower sales tax in the Bay state will mean more of their entrepreneurs can stay home rather than jumping over the border. In fact, the Beacon Hill Institute found (pdf) that Question 3 would increase private sector employment in the Bay state by over 27,000 due, in part, to higher investment.
So, while losing cross-border shoppers will certainly hurt in the short-run; losing cross-border entrepreneurs will hurt New Hampshire a lot more in the long-run. Regardless of what happens to Question 3, New Hampshire must first-and-foremost remain vigilant against adopting a sales tax.
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