Taxes, Economy & Development: A Guide for Success

The tax system of a country or a state is one of the major determinants of how the economy will respond to the economic activities taking place. Taxes determine how an administration interacts with its citizens. They determine how much development people will get and how efficient the services will become. When the taxes are low, there is more disposable income among the citizens thus creating a higher demand for the available goods. Lowering tax rates also allows people to invest more in the economy. Inversely, increasing taxes reduces the need for products and services since people do not have a lot of disposable incomes. The economic policies influence how business, people and the government relate in the long-run. Any laws set must consider the impact on demand to avoid bringing down firms through market uncertainties. Accelerating the cash flow in any economy, therefore, requires tax cuts and incentives for the existing entities and people. The residents of this state (Massachusetts) pay high taxes when compared to others in America. On the flip side, the tax rates in New Hampshire are low. Therefore, the difference in the tax systems of both states is in the rates and impact on each of the economies.

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In most circumstances, household demands go up when the tax cuts are increased. Reduces taxes ensures that business performs better and maximize the extra revenue that they make. Additionally, firms hire more people when they have more operations within the premises. The state tax policies alter the economic activities of the jurisdiction. The new taxes would boost the household incomes of the Massachusetts residents. Consequently, their incomes will increase by over 5.5 billion dollars in 2022. The tax raises by the Massachusetts legislators was due to the revenues not keeping up with the expenditures. The inconsistencies result in the need for other avenues to gain money to run the state. Such methods include raising taxes, borrowing or cutting the services provided. However, the rate of tax cuts does not influence the living conditions of the residents. Anti-tax lobbyists postulate that additional taxes on individuals cause people to migrate to other states especially those without income tax policies. States, therefore, have to ensure that they set in place laws that allow residents to retain more money from their incomes as opposed to paying them to their governments in the form of taxes.

Historically, Massachusetts has been one of the highest taxing states. According to the Massachusetts revenue department, the sales tax rate of the state is 6.25% while the income tax stands at 5.5%. The policies in the state are harsh since the people at the lower income brackets pay more taxes when compared to the high earners. New Hampshire state taxes, on the other hand, has no sales and income taxes. Despite this, the state is among the wealthiest in America with a financially literate population. The tax system of the state is set in a way that allows it to gain revenue from property taxes. Therefore, one of the differences between the two tax systems is that Massachusetts relies on income and sales tax while New Hampshire relies on property tax as its primary source of revenue.

Another difference between the two states is the ability to conduct business. It is costlier to run a business in Massachusetts than in New Hampshire. Each of these states relies on labor as the primary factor of production since either of the states have highly trained populations. However, the tax laws in Massachusetts make the cost of doing business high due to the labor costs that create burdens on the employees. In New Hampshire, on the other hand, the cost of facilitating businesses is low and affordable due to favorable government policies. Since the state of New Hampshire does not subject incomes to income tax, thus people have earnings that they can reinvest and create employment within their locality. Consequently, New Hampshire has been named as the fastest growing economy in the country while Massachusetts is the state with most job losses. In the years 2000 to 2010, the economy of the state managed to create over 5,000 new jobs despite the rate of unemployment in the United States. Therefore, the state tax laws in New Hampshire affect the land and its inhabitants positively.

The state taxes of Massachusetts allow New Hampshire to gain every time there is a loss in the former. Most of the things that happen in either of the states affect their economies. The skilled labor in Massachusetts provides momentum for the growth of the state. However, the policies in New Hampshire inspire growth since low taxes accelerate growth. The state policies here do not affect the economy since the growth of New Hampshire is spurred by the activities taking place in Massachusetts. The state policies help either of the states assist each other to grow since the employees from either place can be employed where they best fit. Therefore, the state policies established may not influence the activities within its borders, and it is difficult to isolate the relationship between taxes and bordering regions.

Despite the minimal influence of tax policies on other states, it has been established that increasing taxes in one state can result in negative results in the neighboring areas. Researchers postulate that the tax effect spills to other states due to the employment and wage levels which affect the spending habits of the population. For example, if the people from Massachusetts work from New Hampshire but get more pay cuts when they go home, there will be lesser money to put back in the economies they reside. Therefore, tax policies affect the entrepreneurial growth and activity of a state.

The disparity in the modes of earning revenue between the two states affects their local economies. The high taxes in Massachusetts delay the growth of the state since people spend slowly. Sales deductions usually are regressive, and they result in citizens not making purchases since they know they will be taxed for the same. Withholding money from the economy results in economic stagnation or limited growth. The system of tax is regressive apart from the income deductions. This regression affects a part of the population, and it creates an inequality through subjecting more fees to those with lesser incomes. New Hampshire, on the other hand, has had a constant growth since its tax system is progressive and it majors on properties thereby creating an avenue for active employment in the sector. Thus, state tax policies uniquely affect the growth of each jurisdiction.

In the past, the state legislature has been providing a holiday weekend for the sales tax in August. The retailers of Massachusetts normally errand the notion about the holiday sales tax. The holiday appends the tax sales for consumptions of up to 2,500 dollars. The retailers of Massachusetts always charge around 6.25 % tax sales on all procurements. According to Forrester research, an average American customer spends about 1700 dollars on online shopping. The 6.25 % sales tax proportion puts the retailers in Massachusetts at a disadvantage against their colleagues in New Hampshire. Consequently, consumers will avoid paying the extra costs associated with the tax in Massachusetts and opt for goods in New Hampshire thus growing this economy.

Another difference between the two states is tax holidays. While Massachusetts allows its citizens to have tax holidays, New Hampshire is not among the states that will enable this policy to prevail. Tax holidays are an incentive to consumers who may feel that the tax policies in Massachusetts are stringent. They help in retaining people in their state, and it ensures that people are not interested in shopping on the internet or New Hampshire. The tax holidays are essential to the economy of this state since they ensure that the money earned within is retained and utilized by the businesses around. The breaks also create employment for hundreds of people who work during the business booms. New Hampshire, on the other hand, has no tax holidays since it relies on property taxes. Therefore, issuing a holiday will be inconsequential to the residents of this state. Hence, tax holidays create a difference in the state taxes of Massachusetts and New Hampshire.

Conclusively, the state taxes of each state have an effect on the business operations within the economy. In New Hampshire, for example, the lack of income and sales taxes ensures that there are reinvestments and thus there is a growth in the economy. New Hampshire imposes property income taxes which tend to generate more revenue for the state. Massachusetts, on the other hand, imposes income and the sales tax on the revenue of its residents. This creates a low circulation of revenue within the economy. Thus, there are low levels of development and self-empowerment within the state due to lack of extra disposable incomes. Additionally, state taxes can influence the spending behavior of citizens. For example, the tax holidays in Massachusetts boost the sales levels of the businesses within the state, and it is also an avenue for creating employment. On the whole, the tax policies between these two states are different, and they have impacted the overall economic growth of these localities.

References

Baxandall, Phineas. 2018. "Who Pays? Low And Middle Earners In Massachusetts Pay Larger Share Of Their Incomes In Taxes - Massbudget". Massbudget.Org. http://massbudget.org/report_window.php?loc=Who-Pays-Low-and-Middle-Earners-in-Massachusetts-Pay-Larger-Share-of-their-Incomes-in-Taxes.html.

Berry, Jake. 2012. "With No Income Or Sales Tax, New Hampshire Does Rely Heavily On Property Taxes". @Politifact. https://www.politifact.com/new-hampshire/statements/2012/jul/23/jackie-cilley/no-income-or-sales-tax-new-hampshire-does-rely-hea/.

Fitzgerald, Jay. 2011. "Mass. V. N.H.: Fact And Fiction About The States' Economic Competition". Boston.Com. http://archive.boston.com/business/articles/2011/08/21/mass_v_nh_fact_and_fiction_about_the_states_economic_competition/.

Roach, Brian. "Taxes in the United States: History, fairness, and current political issues." Medford, MA: Tufts University Global Development and Environment Institute (2010).

Tuerck, David, Paul Bachman, and Frank Conte. 2015. "The Effects Of The Massachusetts Sales Tax Holiday On The State Economy". Beaconhill.Org. http://beaconhill.org/BHIStudies/TaxHoliday2015/BHISalesTaxHolidayReport2015.pdf.