2013-10-18 / Columns

Politics & other Mistakes

Tax me
By Al Diamon

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.

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