I like paying sales tax.
No, I haven’t fallen and hit my head. I know what year it is, who the president is and about half my passwords and personal identification numbers. I’m competitive playing “Jeopardy,” even after two Manhattans (I’ll take cocktails named after boroughs of New York City for a thousand, Alex), and I haven’t forgotten my wedding anniversary since I tried to pass off a jackalope head as a gift (Honey, I’m sure I read online that this year’s present is supposed to be taxidermy).
Having demonstrated my mental fitness, let me clarify my position: If you’ve got to pay taxes – and you most certainly do – a sales tax is the best choice. Unlike the income tax, consumers can decide how much they’ll shell out. And when considering the purchase of items that exceed your budget, you have the option of paying no tax at all by deciding not to buy them. By comparison, income taxes come out of your check at a rate you have no control over and without regard for whether you can afford it.
That said, I must add that when it comes to assessing sales taxes, Maine is mostly doing it wrong. And it handles most other taxes even wronger.
At the beginning of the month, the state raised the sales tax from 5 percent to 5.5 percent. This is the sort of move someone with a concussion might make, but anyone with the slightest grasp of economics would realize was addled-headed. Sales taxes work best when they’re broad, but not very high. Maine’s tax is narrow and creeping upward.
The largest portion of the sales tax comes from purchases of automobiles and home improvement materials, two areas that are highly susceptible to economic downturns. When the state’s financial situation goes south (and in Maine, there’s rarely another direction), people stop buying cars and put off renovating their homes. Sales tax revenue dries up. But no matter how recessionary the outlook, folks don’t stop buying food (which isn’t subject to sales tax); using medical, legal and other professional services (which also are exempt) and buying tickets to amusement parks, movie theaters and ski resorts (which results in zilch in sales tax revenue).
The unpleasant truth about our state’s finances is that we pay ridiculously high income tax rates and burdensome property tax bills because we refuse to consider expanding the sales tax – thereby capturing more revenue from tourists and rich people. We could use the extra money we’d realize from an expanded sales tax to reduce the income tax to such a tiny amount that most of us would barely notice it and to cut property taxes in half.
Here’s how it would work. Levy a 5-percent sales tax on all retail transactions, except meals and lodging, which are already taxed at a higher rate, and tobacco and alcohol, which are likewise singled out for nasty sin taxes. Use a big portion of the new money the state would collect to pay for education, thereby removing that expense from property tax bills. Use most of the rest to reduce the income tax.
Before you get too excited and start spending all the money you think you’d save, get your head on straight. This reinterpretation of our tax structure is revenue neutral. You’d still pay a total tax bill that’s about the same as you cough up now. You’d just hand it over in much smaller increments. You’d also have a lot more control over your taxes, because you’d decide when you’d make major purchases and how expensive those items would be.
What makes this altered system an improvement over the status quo is stability. State revenues wouldn’t take sudden lurches in unpleasant directions every time the national economy flinches. With more predictable income projections, state budgets would be less prone to shortfalls. And in the unlikely case of a surplus, we’d face the pleasant options of building up our Rainy Day Fund or reducing tax rates.
As noted above, I like paying sales tax, but I’d like paying one that was only, say, 4 percent instead of about 27 percent more.
I can hear the bleeding hearts whining about how this change would negatively impact the poor. But my plan sets aside enough money to protect low-wage earners. Some of the additional revenue raised by the expanded sales tax would be used to reimburse low-income taxpayers for all the sales tax they paid. They’d get a refund through their income tax – or a direct payment if they didn’t owe any income tax – roughly equal to their sales tax bill. Our state’s neediest citizens would actually pay less than they do now.
The rest of us would have fatter paychecks, due to smaller deductions for income taxes. We’d have more manageable property-tax bills, because the sales tax revenue would pay most of the cost of schools. We’d have more incentive to save or invest, neither of which is subject to sales tax.
And if we hit our noggins and had to pay an extra 5 percent on the hospital bill, we’d undoubtedly be too dizzy to notice.
Give me a heads up on what you’re thinking by emailing aldiamon@herniahill.net.
The concept of broadening the sales tax – so it could be lowered and also become more stable – is similar to the law the 2009 legislature passed (in that case so that income taxes could be lowered) but which was overturned in a popular referendum people’s veto in June of 2010.
A higher sales tax makes the most sense…that is why it is not implemented in Maine. Cut the EBT program by about 75 percent which will still leave significant room for abuse. The argument that cutting welfare will lead to a significant rise in crime should not be a consideration. The state subsidizing criminals to keep them fed is as ludicrous as Chellie Pingree understanding the hardships that the average Mainer faces. I’m surprised that the legislature hasn’t named the State Tit as the official Maine Dessert.
Paul — The 2009 plan wasn’t revenue neutral. Mine is.
Cheers,
Al
Al, It;s a blessing that you do not hold any public office or are in the running for one (that I’m aware of).
Outstanding idea Al, but it won’t fly. Makes too much sense.
Evan, I can only assume you don’t like Al’s tax plan, although you haven’t said why. What do you have against it? I mean, other than the obvious: it doesn’t sufficiently punish the evil rich with a higher progressive rate.
Income tax is fairer than property tax. And the personal property tax is the worst.
I like to buy a muffin most mornings. Sometimes at a supermarket, sometimes at a convenience store. No one seems to know how to tax it. Sometimes I pay a meal tax, or a snack tax, some times not.
Services are another story. Some services are taxed. Most are not.
If services were taxed the same as merchandise it would broaden the tax base a lot.
I have skied at resorts that have a tax on the lift ticket, in Canada and I am pretty sure in other states as well. I didn’t see any dearth of potential skiers at any of them.
Sounds like Al has finally read about the FairTax.org – which has been a bill in the US House for many years (10 or so I believe) The billions of dollars saved annually by removing the costs associated with reporting to the IRS would truly stimulate the economy.
Yes lets tax food and medicine while we provide even lower tax levels for high income earners (I am in the states highest income tax bracket currently). Come on Al seriously. In fact the general idea of expanding sales tax on multiple current exemptions is a good one (lift tickets etc) but the big money is in the core basic necessities as Al points out. This means as study after study have shown this proposal would increase the tax burden on low income (no income tax) property poor or renting (low property tax) persons and lower the tax burden on high income, high property wealth individuals and corporations.
While Al might think his plan is revenue neutral it is not distribution neutral. Further history has shown that the property tax being locally voted rather than under state control does not automatically reduce because of other revenues increase.
Here is a compromise plan.
Expand the sales tax to all retail areas as proposed and simultaneously close all the tax exceptions being reviewed currently in Augusta and restore the income tax surcharge for income above 100K (that gets me) . Use the significant revenue increase to fully fund the property tax circuit breaker program and to raise the income tax exemption to eliminate the income tax for more lower and middle income Mainers (Remember the original fed income tax was only on the highest income earners) at the same time. This would increase stability as Al desires and increase tax distribution equity.
But since that would mean those most benefiting from our free enterprise system would have to pitch in a little more this would never happen.
BTW before I get the typical response of if you want to pay more taxes go ahead but don’t ask your fellow well off to pitch in line let me draw an analogy. Those who suggest this are the same as those in a lifeboat who respond to a suggestion that all personal food and supplies be put in common to be shared for the benefit and support of all are told go ahead share your stuff if you want to but don’t ask me. Now we are not quite in a lifeboat yet (but by the wails and cries of some teaparty folks you might think so) But when a corporation pays 13 billion settlement as the normal cost of business (that business being the institutionalized exploitation of the poor) and its stock price doesn’t even shudder, they are clearly riding in the first class salons of the Titanic. Despite popular rhetoric upper income tax rates are at historical lows (much lower than the golden nostalgic post war days). No I do not support socialism (that’s why I support repeal of all those corporate subsidies) I would encourage those who cry liberal socialist to go back and read Adam Smith and review Teddy Roosevelt or Ike.