The invaluable Tax Foundation’s latest report
on sales taxes placed Louisiana in the third-highest spot for combined state/local
rates, having only the 38th ranked state rate but the highest weighed
local rate. In fact, in a sense, the state rate is both not high enough and too
high, courtesy of the remaining part of an unwise constitutional change almost
a decade ago.
While lower rates in any form of taxation are preferred, taxation
itself is a necessary crime of theft in order for government to operate. But if
we are to allow government to take our property, the general immorality of that
is mitigated by making sure the burden is borne equitably by making sure it is
done the most efficiently – in the manner that is least costly and most likely
to encourage economic development that therefore brings wealth to all who
contribute by their participation in creating that wealth. That is, nobody
should be under- or over-taxed relative to their contributions to societal wealth
creation.
Unfortunately, Louisiana’s present system violates efficiency
rules. Most egregious at the state level is its refusal to collect from a
broad base with undifferentiated rates. Its income tax is graduated and
pockmarked with exceptions, while its sales tax exempts certain considered essential
commodities and is subject to various tax-free calendar dates (such as the one
this coming weekend). This distorts collection through avoidance strategies and
wastes resources in pursuance of those strategies. Particularly with the sales
tax, it misses opportunities to collect more without dampening economic
development by ignoring the elasticity of taxable goods, and with income taxes
it discourages investment and encourages debt.
To be more specific in the case of the state sales tax (the income
tax this space has dealt with previously), the exemption of unprepared food,
pharmaceuticals, and utilities creates great inefficiency (triggered by the part
not
yet repealed of the “Stelly Plan”). Its approach is exactly the opposite of
what should occur with basic goods of low elasticity (that is, fairly
demand-invariant even as supply changes) – it doesn’t need to not tax these,
but actually to tax these and at a higher rate than other commodities. The same
goes with relatively inelastic luxury items with significant external costs,
such as tobacco, liquor, and gambling, which are largely currently taxed at a
higher rate but could go higher still.
Thus, what the state could do is lower the state rate, say to two
percent, but charge it on everything (that would require constitutional
amending), which probably offsets in total revenue overall (or whatever figure
is necessary to make it revenue-neutral, as long as the rate is flat). While
this would have the effect of a tax increase on poor households for many items,
it also might save them in taxes by getting them to shift their consumption
away from non-essential items because of the now-greater cost of the essential
items, which might lead to better decision-making in their personal lives geared
more to the long-term and encouraging more investment rather than consumption.
For wealthier households, depending on consumption patterns, this might be an
aggregate tax cut, a portion of which will find its way into greater
investment.
These habits may be amplified by raising so-called “sin” taxes, making
the costs of these behaviors higher with the goal of ending consumption (because
of their inelasticity, users are much more likely to hit an inflection point
where for many of them their habit gets so expensive they simply quit, being
unable to reduce intake). This also may end up being revenue neutral, as the
higher rates take in more but from a smaller and smaller base, but almost
certainly will reduce societal costs stemming from the decline of this behavior
(and likely exceeding additional costs of compliance).
Note that all of these must occur together; separately, they create
different inefficiencies. For example, simply getting rid of the exemptions
without overall state sales tax reduction does not promote shifting of
consumption habits and encouraging investment. Hiking sin taxes in isolation,
without lowering costs for alternative consumption pathways through sales tax
flattening, might drive compliance costs too high.
The stratospheric local sales tax is another matter. While the state
sales tax of all state-generated revenues, a little
under 30 percent, is about at the median for all states, local governments
rely heavily on the sales tax because most local governments have to comply
with the nation’s highest homestead exemption, making per capita collection one of the lowest in the nation. While the
state does put caps both on the highest combined local sales tax and property
taxes allowed, the best strategy here would be to lower the exemption and the
maximum levels charged for the combined local sales tax, and perhaps the
combined property taxes (constitutional amending would be needed), again with
the goal of revenue neutrality.
2 comments:
How can you possibly argue that taxation is immoral in one case, particularly if it isn't the case that the "...burden is borne equitably...", and turn around in another to suggest that it is acceptable to use taxation as a coercive force to socially engineer what you consider the "lower orders". In any event, your use of "equitable" is loaded from the start and your semantics do a great deal of work in showing your contempt for anyone outside of the privileged class.
I would ask from what philosophical grounding relevant to our founding traditions that you pull your idea that taxation is morally wrong, but I know it isn't from the likes of Hobbes, Locke, or Rousseau. I suspect the Messianic Friedman is at work.
Sadow whines that taxes are too high in this post, then in the very next post whines that there simply isn't enough money in state coffers to pay to care for prisoners. Regardless, this post is a great example of why far-right extremists are stupid about tax policy. Taxes are always evil, "punitive" and something that mean liberals do to righteous conservatives. Except, of course, when it comes to social engineering taxes, in which case taxes are a great way to punish leaching liberals and teach them a lesson. Simply put, neocons aren't mature enough to handle the difficult questions inherent to tax policy because they are too bound up in hatred and assorted anti-tax reflexive slogans. Here's what's obvious: the exact policies that have severely damaged our national economy in the Bush years is now being trotted out as Christ-endorsed gospel. But if you think that the likes of Jeff would be embarrassed to wield such patently stupid economic "tax fairy" arguments, you haven't witnessed Jeff's remarkable ability to drink the Kool-Aid.
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