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Why do we have water bans?
 Price system means real water conservation
continued on page 4continued on page 5
BHI enters New Hampshire tax foray
Governor’s sales tax plan would have killed jobs
Vol. 5, No. 3 Spring 2001
I
n a state known for its tax re-sistance, imposing a sales taxis no small challenge. NewHampshire Governor JeanneShaheen learned this when she backed a planto establish a 2.5% sales tax as part of her EX-CEL NH program to fund state public schools.Governor Shaheen’s plan, announcedin February as a “long-term funding and im-provement solution” for public schools, wasexpected, according to the governor, to yield$365 million in net revenue in FY 2003. Shebased her projections on estimates by the NewHampshire Department of Revenue Adminis-tration and by her blue ribbon tax commissionshowing that her tax package, which includedthe 2.5% sales tax, would cover the state’s educa-tion costs.She had the support of educatorsand manufacturing groups, who saw a salestax as the least objectionable method of rais-ing the funds.Retailers, however, disagreed withher. They felt the plan would result in a lossof sales from out-of-state residents whoshop in New Hampshire to avoid sales taxes.This would lead to greater revenue loss forthe state than anticipated.In March, the Beacon Hill Institute joined the debate. A
 BHI FaxSheet,
“Sales TaxFacts: Revenue Gains and Job Losses in New
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 From the Executive Director
The 'Living Wage': Harvard'sdilemma...................................2
 News Analysis
Opting in, tuning out:Voluntary checkoffs................3Shifting capital gains taxes....6
 BookMark
 Basic Economics,
by Thomas Sowell, reviewed.....7
or approximately 55 Mas-sachusetts cities andtowns, the arrival of sum-mer has for years beenmarked not only by Memorial Day butalso by the advent of outdoor waterbans. This year will be no different.Towns like Gloucester, Chelmsford andRockport in the East, Lanesborough inthe West, and Attleboro, Dartmouth andFalmouth in the South may face theprospect of browned lawns.If you live in one of these com-munities and think that the deluge inMarch and the rains in late May willavert the prospect of browned lawns anddirty cars, think again. Massachusettshas experiencied one of the driestsprings in recent memory, thus guaran-teeing that, once again, the water policewill be on patrol.Fortunately, most cities andtowns in the Bay State do not impose wa-ter bans. Not one city or town in the Mas-sachusetts Water Resources Authority dis-trict, long plagued byhigh rates and BostonHarbor clean-up costs,will impose a waterban. And, according tothe state Department of Environmental Protec-tion, many of the townsthat deploy water bansrely on the goodwill of their residents for en-forcement. Last year,approximately 20 townswith restrictions madethem voluntary.But residents of other towns face thesummer ritual of leafing through local news-papers for information on when and how theymay water their lawns.Why does it have to be this way?Fuels like gas and oil are not now rationed, andfood and other household necessities are easyto find. Why this asymmetry?
The solution: A market system.
The answer is that, as with other short-ages, water shortages result from providerskeeping prices artificially low. Because the priceis kept low, people consume more water onbathing, cooking and watering their lawns thanis available for those purposes.
 
 NewsLink
is published quarterlyby the Beacon Hill Institute for Pub-lic Policy Research at Suffolk Uni-versity. The Beacon Hill Institute fo-cuses on federal, state and local eco-nomic policies as they affect citizensand businesses, particularly in Mas-sachusetts. The institute uses state-of-the-art statistical, mathematicaland econometric methods to pro-vide timely and readable analysesthat help voters, policy makers andopinion leaders understand today’sleading public policy issues.
P
UBLISHER
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AVID
G. T
UERCK
 EXECUTIVE
 
 DIRECTOR
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RODUCTION
E
LLEN
F. F
OLEY
 DIRECTOR
 
OF
 
COMMUNICATIONS
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DITOR
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RANK
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ONTE
 PUBLICATIONS
 
 EDITOR
(ISSN 1094-0707)
©2001 Beacon Hill Institute forPublic Policy Research, Suffolk University, 8 Ashburton Place,Boston, MA 02108-2770. Voice,(617) 573-8750; fax, (617) 720-4272;e-mail, bhi@beaconhill.org; website, http://www.beaconhill.org.
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 From the Executive Director
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The "living wage" threatens to turn un- skilled workers whowork for $6/hr. intounemployed workerswho work for nothing at all.
 
David G. Tuerck 
arvard Square is quieternow that the student sit-in at Massachusetts Hallis over. For three weeksin April and May, students demandinga “living wage” for HarvardUniversity’s lowest paid workersstaged a high profile, celebrity en-dorsed protest that drew support fromelected officials and organized laborand drew coverage from papers acrossthe country.The campaign for a livingwage had been centeredthus far on U.S. citiesand counties (includingBoston and Cambridge),the aim being to forcefirms doing businesswith local governmentsto pay workers at somelevel deemed to repre-sent the minimum wageneeded to support afamily. The Bostonordinance defined thewage as one “sufficientfor a family of four tolive at or above the federal povertylevel” and set the wage initially at$8.23/hr.Now the campaign wasextended to the country’s mostprestigious university. The 30 studentprotestors wanted a commitment fromHarvard to pay workers the $10.25/hr.set by the City of Cambridge.Harvard responded initiallyby defending its employment prac-tices, saying that none of its full-timeemployees makes less than $10.25/hr.in total compensation and that, of allits 13,500 regular employees, onlyseven make as little as $8.05/hr.Harvard appeared to concede thatsome of its contract workers make lessthan this but pointed out that many of these workers are covered by collec-tive bargaining agreements.In the end, the protestors’ 21days of behind-the-barricades actionbrought some results. The universityagreed to establish a panel to studythe issue and pledged not to subcon-tract further work.
The problem with living wages.
Although Harvard might haveshown surprising fortitude in standing up tothe protestors, it would have been justified inshowing far less sympathy than it did. Thereason is that the living wage campaign hasnothing to do with assuring families a livingwage and everything to do with benefitingworkers who already live well above thepoverty line.First and most obviously, auniversity, even a richly endowed univer-sity, has an obligation to use its resourceswisely. Stu-dents do notpay tuition andalumni do notdonate fundsto conduct asocial policy of incomeredistribution.Rather, theypay – or atleast so wehope – forinstruction,research andthe other things universities are createdto do.And then there are the workersthemselves. Suppose an employer canhire a worker to do a job for $6/hr. Whilethe employer might be content to hire alow-skilled worker to fill that job at thatwage rate, it might very well decide tohire a different, more highly skilledworker if it is compelled to pay $10/hr.instead.While a city contractor or groupof protestors might force an employer topay
some
workers to do a job for $10/hr.,no one can guarantee that the workeractually hired to do that job will be the$6/hr. worker for whom the “livingwage” was intended.The living wage threatens to turnunskilled workers who work for $6/hr.into unemployed workers who work fornothing at all.By driving up the cost of labor, aliving-wage ordinance or policy discour-ages an employer from contracting with anonunion vendor and weakens employerresistance to union demands forhigher wages. Thus the livingwage benefits union workers whohave protected jobs and who makefar more than the unskilled workerwho might lose his job because theliving wage is mandated.Wages ultimately dependon worker productivity, as en-hanced by technical progress andthe willingness of entrepreneurs tosave and take risks, not onsomeone’s good intentions.
 
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 Media Mentions
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Voluntary taxes: Who checks off in Mass.
axpayer check-off pro-posals seem to be theSpring fling on BeaconHill. As
 NewsLink 
goesto press, several check-off propos-als have made their way through theHouse, including a controversial taxform check-off for the so-calledClean Elections Fund, a campaignfinance reform measure approvedby the voters in 1998. In addition,the Massachusetts House recentlypassed a bill that would enable tax-payers to volunteer to pay theirtaxes at a higher rate. The legisla-ture also approved yet another check-off that would earmark dollars for aCommunity Preservation Fund.If signed into law, the “vol-untary” income tax rate bill initiallyfiled by House Minority LeaderFrancis Marini, would allow indi-vidual taxpayers to opt for a higher5.95% tax rate. Last November, vot-ers decided overwhelmingly to
Ellen Foley and Frank Conte’s opinioneditorial, “The Space Race,” appeared inthe
 Boston Sunday Herald 
on May 20.David Tuerck discussed the energy cri-sis on WRKO radio on May 17.The
 Boston Phoenix
story, “Beacon HillInstitute celebrates 10 years,” appearedin the May 4–10 edition.The
 Boston Globe
cited BHI on May 2:“Congress to weigh fate of disputeddairy compact.”Our analysis of the New Hampshiresales tax proposal received coverage onMarch 29 in the following New Hamp-shire newspapers:
 Berlin Daily Sun
,
Con-cord Monitor Online
,
Keene Sentinel
,
Ports-mouth Herald 
,
The Union Leader 
and
Tele-graph Online
. Vermont newspapers in-cluded
 Brattleboro Reformer 
and
Valley News
. The
Caledonian-Record 
,
 Daily News
(Newburyport, MA),
 Eagle Tribune
(Lawrence, MA),
Foster’s Daily Democrat 
(NH),
Portsmouth Herald 
and
The Union Leader 
provided coverage on March 28.
Citizen
(NH),
Concord Monitor 
,
Foster’s Daily Democrat 
,
Sun
(Lowell, MA),
Tele-graph
and
The Union Leader 
covered thestory on March 27.
Keene Sentinel Sun-day
(NH) and
Sunday Telegraph
coveredthe story on March 25. On March 29,David Tuerck discussed the proposedsales tax on WSNW radio (Nashua).WPTT-AM radio (Pittsburgh) inter-viewed Frank Conte on businesses’ sav-ing money using high-speed Internetaccess (April 24).
Yahoo! News
coveredour high-speed Internet access analysison February 19 and 20.
 Eastern Pennsyl-vania Business Journal
(Allentown, PA)cited the analysis on February 12.Our education study received coveragein the
 Enterprise
(Brockton, MA) on Feb-ruary 16. Also covering the study:
 North Andover Citizen
(February 14) and
 Milford Daily News
(February 10).
0.00.51.01.52.094 95 96979899*
Source: Mass. Department of Revenue
Organ TransplantNatural HeritageAIDSOlympic* PreliminaryPercentage of taxpayerswho check off 
scale back the income tax rate to 5% bythe year 2003. Tax-cut proponents saythis voluntary arrangement will allowpeople who voted against the tax roll-back the option of sending more dol-lars to fund public services.But if the past is any guide, fewtaxpayers may opt for this form of al-locating funds
a la carte
. Today, tax-payers have four choices for increas-ing the amount of taxes they pay or re-ducing the amount of their annual re-funds: the Organ Transplant Fund; theAIDS Fund; the National Heritage andEndangered Species Fund; and theOlympic Fund. But the rate of partici-pation is dismally small. For example,last year less than 1% of the nearly 3.2million tax filers opted to make con-tributions to each of the four funds.Overall, contributions appear to fall as thenumber of income tax returns increase.
T
Checking off in Mass: Opting in or tuning out?
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