Senate President Therese Murray and House Speaker Robert  DeLeo last week announced  a  proposal  that would increase gasoline, tobacco and certain business taxes to close an operational deficit in the Massachusetts transportation system that is set to reach $548 million by Fiscal Year 2018.

The legislative plan would generate $110 million by increasing the gasoline tax 3 cents per gallon and then indexing the levy to inflation.  It also raises $161 million from a tax on computer services, $110 million from tobacco taxes and $83 million from changes to utility classification and sales sourcing.

The measure is more focused than Governor Deval Patrick’s earlier plan to spend more than $1.9 billion a year on transportation and education. The governor sought to increase the income tax from 5.25 to 6.25 percent, eliminate 44 personal exemptions and deductions, reduce the sales tax from 6.25 to 4.5 percent and raise corporate taxes by $500 million annually.

John Regan, Executive Vice President of Government Affairs at Associated Industries of Massachusetts, said employers are encouraged that the Murray/DeLeo proposal requires both the MBTA and Department of Transportation to meet reasonable benchmarks for revenues, savings, and reforms.

“Although we would have preferred that the plan rely more heavily on transportation-specific sources of revenue, we nevertheless believe that the proposal announced by Senate President Murray and Speaker DeLeo takes a meaningful step in the right direction by solving the immediate and long-term structural deficit of the state transportation system.” Regan said.

The increase in the gasoline tax would cause an average driver to pay an additional $12 to $30 per year to fill the tank. The Legislature said it did not want to rely solely on increasing the gas tax because gas consumption has declined in recent years and is expected to continue to fall.

The plan would provide “forward funding” for regional transit authorities in 2014 and allow the Department of Transportation to move all employees onto the operating budget by 2016, ending the current practice of  paying for personnel with borrowed funds.

Information provided by the Legislature indicates that their proposal to apply the sales tax to software modifications and systems design does not impose taxes on cloud-based services such as remote data storage. Downloads of computer games, music and books would also remain outside the new sales tax.

PriceWaterhouse Coopers Analysis of Business Taxes in Murray/DeLeo Plan

Ernst & Young Analysis of Tax on Computer Services

Richard C. Lord, President and Chief Executive Officer of AIM, commended the Legislature for its proposal and Governor Patrick for initiating a serious and thorough discussion of state spending priorities.

The full House is scheduled to debate the plan later today.  Although AIM would have liked to see more reliance on transportation-related revenues and less on increased business taxes, we believe this plan represents a reasonable approach in the midst of a less than robust economic recovery and we encourage the members of the House to support it.