Dean Calbreath, of the San Diego Union Tribune, attacks Governor Schwarzenegger's sales tax plan as a regressive tax that could penalize the poor in our state. The alternatives he offers, however could be more regressive than a sales tax:
Any freshman economics student will tell you that producers pass through those taxes to consumers. Taxation on gasoline is the second most regressive tax one can levy (food being first). In car-crazy California, both Paris Hilton and illegal immigrants pay taxes at the pump. If we're looking to avoid taxing the "working poor", we would be well advised to refrain from any new taxation on fossil fuels. The argument "everyone's doing it" doesn't necessarily make it right.
Lenny Goldberg, executive director of the California Tax Reform Association in Sacramento, recommends reintroducing a rate of 10 percent for couples earning more than $300,000 per year – the top 1 percent of the population – and 11 percent for couples earning more than $600,000. He estimates that a restoration of those old tax rates could generate $6.5 billion in the first year and $5 billion in future years.
The Assembly moved to reinstate the higher rates
last spring, but it failed to meet a legislative deadline. The
California Chamber of Commerce calls the idea a “job killer,” saying
that it would hurt entrepreneurs. But the effects of a tax increase
would be reduced by a deduction in federal income taxes. And is it
really true that small businesses would shrivel up and die if we
returned to Reagan-era tax levels? That's hard to imagine.
Mr Calbreath is missing the boat on this one. Taxing the most productive members of society is never well advised in a down economy. That $5 billion is revenues can create a lot of jobs. Reagan was an ardent supporter of less taxes on the businessman:
Reagan did institute property and inventory tax cuts, but during his tenure the sales tax was increased to six percent and withholding was introduced to the state income tax system. Under Reagan’s administration, state funding for public schools (grades K- 12) increased 105 percent (although enrollment went up only 5 percent), state support for junior colleges increased 323 percent, and grants and loans to college students increased 900 percent Reagan’s major proposal to hold down the cost of government was a constitutional amendment to limit state spending to a specified (slowly declining) percentage of the gross income of the state’s population. The measure was submitted to the voters as an initiative measure, Proposition One, but was defeated when liberal opponents pictured it as a measure that would force local tax increases.
Reagan continued in this interview that businesses don't pay, they collect taxes:
But they are fools in thinking that business somehow is getting a special break. Who pays the business tax anyway? We do! You can’t tax business. Business doesn’t pay taxes. It collects taxes. And if they can’t be passed on to the customer in the price of the product as a cost of operation, business goes out of business. Now what they’re going to do is make it easier for demagogic politicians–and you’ve got plenty of them in the state legislature–to say to the people, look, we need money for this worthwhile project but we’re not going to tax you, we’re going to tax business, now that we can do it by a one vote margin. So they’ll tax business and the price of the product will go up and the people will blame the storekeeper for the rise in the price of the product, not recognizing that all he’s doing is passing on to them a hidden sales tax.
There's the beauty of a sales tax; the true cost of government becomes completely transparent to the consumer. The consumer gets to "vote" on government policy, daily. If those taxes become so repressive that consumer elect to not purchase goods and services, shopkeepers and producers would put the appropriate pressure upon the government to reduce its services.
This method of taxation is most notably prevalent in Europe where it is referred to as a "value added tax" or VAT. Criticisms are that it's mostly regressive but we can exempt certain transactions (food, fuel, housing, clothing. etc) to avoid the burden on the poor. I love the term "value added" because consumers are reminded, daily, to justify the "value" their government offers when purchasing goods and services.
A sales tax is scary to government officials because of its transparency and voluntary participation. In times of economic despair, consumers and producers alike will turn to the government and require them to reduce spending, which requires a reduction in services...
...and a reduced dependence on government. Bureaucrats don't like that because, just like you, their job security becomes subject to periodic review.
The answer to declining tax revenues is always a reduction in spending. Californians, from Crescent City to San Ysidro, are tightening their belt during these tough economic times. Let's insist that the folks in Sacramento do the same.
