New Hampshire Eyes Big Payday from Mass. Sales Tax Hike

The Boston Herald reports:

Bay State border towns, bruised by a brutal recession and drastic cuts to local aid, are bracing for a shoppers’ exodus into tax-free New Hampshire if legislative efforts to raise the sales tax by 25 percent prevail in coming weeks.

“We are already feeling the disadvantage we have today,” said Methuen Mayor William M. Manzi III. “We think the increase makes it substantially worse. We’ve seen a major flight of jobs and business investment into Salem, N.H. This is not good for Methuen.”

House and Senate lawmakers have passed separate proposals with veto-proof margins to hike the sales tax from 5 percent to 6.25 percent to help balance the state budget. House budget writers estimate the hike will generate $900 million next fiscal year, including $205 million for local aid.

Senate leaders, who based their estimates on 10 months of sales tax collections at the higher rate, say the hike will generate $633 million.

The Laffer curve effect at the local level. Also know as the law of diminishing returns from taxation.