There are days I really am glad I live in Massachusetts. We read in the NY Times that, in many Republican-governed states, there is a movement to shift the tax burden from corporations, estates, and income to sales taxes. Yes, this is the same old Republican same-old, but, unfortunately, I’ve noticed a lot of economists like this idea:
Along the way these governors are taking small first steps into a debate over what kind of tax system most encourages growth in a 21st-century economy. In particular they are focusing attention on the idea, long championed by conservatives but accepted up to a point by economists of all stripes, that the economy would be better served by focusing taxation on consumption rather than on income.
The argument is that a sales tax encourages savings (which can then be used to drive investment–an argument debunked by James Livingstone in Against Thrift, by the way. But I digress). This assumes, however, that most people are choosing between non-essential goods and savings. I’m not sure that’s the case at all. For many people–and not just the poor–once you factor in higher housing prices, more rent extraction (all those damn fees), increasing insurance rates, as well as the 21st century accoutrements that keep you competitive in the job market (internet access, cell phone), most people are not saving anyway. This makes an increase in the sales tax yet another burden diminishing the quality of life for too many.
So, in the real world, this is simply knocking down the lower middle class and the poor even more, while giving the rich a tax cut.
Meanwhile, Governor Patrick, to his credit, is proposing the opposite to pay for much needed transportation and education programs: cutting the sales tax from 6.25% to 4.5% and raising the income tax by a percentage point (5.25% to 6.25%). Haven’t always been a huge Patrick fan, but he’s absolutely right about taxes.