Raise Leverage, not Taxes
Like the authors of the Massachusetts constitution, I believe that everyone should pay their fair share of state taxes. A dramatic increase in the deduction and the income tax rate erodes that principle. Such a change is currently being discussed among state legislators. Instead of inventing tax schemes to redistribute wealth, we should focus on ways to make it easier for low-income families to increase their income. For example, we could double the minimum wage. Property tax (which disproportionately burdens middle-income people) could be lowered by allowing towns to add a percentage to the local income or sales tax rates.
I do think that an increase in the gas tax to compensate the current budget shortfall is a good idea. For example, a 35 cent per gallon tax increase (to a total of 56 cents per gallon) should close the $1B budget gap. The price of gasoline will stay low throughout the recession. The tax should keep pressure to move towards lower carbon output and lower oil imports. However we should plan on the price of gasoline to naturally rise as we exit the recession in a year or two.
A gasoline tax scheme that periodically adjusts to achieve target gas price (say, $3 per gallon) could both solve our current budget crisis and also provide price stability. Price stability will make it easier to budget for transportation costs and it will increase the certainty of economic reward for investment in more efficient transportation. This “counter-cyclic” tax should also help keep the state income more consistent. When economic growth declines, income and sales tax revenue will fall, but so will the price of gasoline. A “price target” gasoline tax would automatically offset some of this decline in state revenue.