By Morf Morford, Tacoma Daily Index
We in the state of Washington are often considered to have among the most regressive tax structures of all of the states. That’s because of our emphasis on a sales tax – and lack of a state income tax (we are one of just a few that don’t have one).
In other words, those who have the least end up paying the most, and those who have the most, pay the least.
In terms of tax receipts and fairness it is indeed both regressive and ineffective.
The new US Congress has apparently looked at our regressive, barely functional system, and yes, they liked what they saw.
When politicians call a tax proposal “fair”, it might be time to count your fingers and hide your wallet.
In what could only be a deliberate attempt to stifle retail sales, impoverish average Americans, shelter the wealthy and accumulate even more long term debt (in an era of record-high interest) the 118th Congress is on the move with the Fair Tax Act introduced by Rep. Buddy Carter (R-Ga.) proposing to institute a 30 percent sales tax on all purchases in exchange for doing away with income, Social Security and Medicare taxes.
What’s not to love about a 30% sales tax?
As someone who has grown up with sales tax, and has studied various forms of taxation, my conclusion is very simple: sales taxes are the most unfair, least efficient and, perhaps above all, easiest to avoid.
When it comes to equity (AKA, fairness) sales taxes fail dramatically – and immediately.
Consider, for example, what percentage of weekly (or monthly) income different economic classes spend.
Those who live “paycheck to paycheck” (according to a recent survey, that is 74% of Americans!) do exactly that – they spend their entire income before the next paycheck arrives. In other words, those on the bottom of the economic scale spend essentially 100% of their income almost as soon as they get it. And are taxed on it.
(Editor’s note: The inherent unfairness of Washington state’s sales tax system was recognized (after several decades) and the sales tax on groceries was removed.)
With this proposed nation-wide sales tax, People’s Policy Project founder Matt Bruenig estimates the poorest fifth of Americans would pay roughly 70 percent of their income in taxes – the second-poorest fifth would pay about 38 percent – and the richest fifth would pay close to 17 percent. You can see details in his video analysis here.
Middle-class earners set aside a good-sized amount of their income toward what could be called deferred savings – retirement, vacations or college funds for kids among others.
But the bottom-line is that middle class workers, on a regular basis, spend far less than half of their weekly or monthly incomes.
Wealthy people spend, by far, a miniscule percentage of their income on a regular, reliable basis.
The highest percentage of their income is not only not “earned” (by working as most of us would define it), it is not “spent” on anything like essentials found at your local grocery store. Their assets go into tax havens, foundations, charities, pet projects, stocks, bonds and a variety of other investments invisible or out of reach to most of us.
Most of us, unlike the wealthy, would spend less – which would obviously hurt all retail – especially dining establishments.
Sales taxes, for better or worse, penalize customers, not citizens. They impact visitors as well as locals.
To avoid state sales taxes, those who can afford to buy high-ticket items can also afford to go to other states to buy them.
Oregon, Idaho and British Columbia boat and car dealers are thrilled by an increase in business thanks to Washington’s sales taxes.
In the same way, Canadian and Mexican businesses, especially vehicle dealers, realtors and resort and vacation providers would be ecstatic if we had a national sales tax.
Among other aspects not considered by those who propose such a tax is, who would collect it?
Who would collect a national sales tax?
At first, the federal government would ask state governments to collect it for them, but most states won’t want to and can’t be forced to do so under the Constitution.
Several states don’t currently have a sales tax, and those who have one are reluctant to collect more than they already do.
The proposed law would set up two new federal tax agencies, an Excise Tax Bureau and a Sales Tax Bureau to take the place of the much-hated IRS.
In other words, instead of having one taxing bureaucracy to hate, Congress would give us two.
Nobody likes taxes, but what if we could make them less painful?
What if we could collect taxes in a way that allowed choice – maybe even a little enjoyment along the way?
Lotteries are, if anything a voluntary form of taxation. Even if we don’t “win” a lottery, we have a brief moment of wondering what we would do if we did win. Or we could have fantasies of wealth without even buying a ticket.
How about a “stupid tax”?
It’s a truism among financial advisors that there are many people out there with more money than sense.
The current generation of tech (and other) billionaires seems determined to prove, if not exceed, any doubt that there need not be any correlation between financial assets and sense. Or integrity. Or even basic human decency.
The potential harvest of tax dollars from these not-so-smart wealthy among us is immense.
I’m not sure how to quantify, let alone monetize, stupidity, but I am sure it can be done.
I don’t know what it would take to get some of our billionaires to fund highway repair, public education or mass transit, or parks, or even subsidize housing instead of vanity space projects, but I’m sure someone could come up with a persuasive argument or program.
People who have money to pay for luxuries, also have money to pay extra for the public benefit. At least that’s the principle behind luxury taxes.
Those who have more are expected to pay more, those who have less are required to pay less. It’s common sense – and a Biblical principle – not known, apparently, by those advocating an onerous sales tax for all of us.
There are categories of objects, activities and income that are not always taxed.
In Washington state, some “essentials” (as in food) are immune from taxation. Some income sources (as in inheritance, gifts and most earned interest) are also protected.
Social Security (a fund that workers pay into) was untaxed for many years – and in a sane society never would be. One reason of course, is that it is not “earned” – it was paid out of income many years before.
Your tax dollars at work
In summary, we need a better, more comprehensive, enduring and effective means of acquiring funds to support those mechanisms that keep our society going.
Like most people, I don’t mind paying reasonable taxes for things that I use or support, or even those investments that may not impact me directly, like parks, schools and security. But tax funds above all, should not be wasted, should not be oppressive and should, perhaps above all, be constructive and productive.