July 23, 2015
Carolina, veterinarians are miffed. In Connecticut, it’s car-wash proprietors.
and local governments reflexively pursue more revenue, rather than budget cuts,
as the preferred method to balance their books, and the sales tax remains a
favorite tool. Legislators in the Tar Heel State are considering an extension
to several types of services, including pet care. Pushback is fierce. “Human
healthcare is not taxed,” charged Karen
Miller, owner of the Lincolnton Animal Hospital. “Veterinary care is
medically necessary for its patients just as human healthcare is for people.
Veterinary care should not be discriminated against.”
north, Nutmeggers who need to clean their vehicles are facing a tax blast from
the past. Car washes were subject to Connecticut’s sales tax between 1989 and
1993. But the levy, currently set at 6.35 percent, is back. It’s posing a
challenge for coin-operated facilities, where equipment is usually designed to
accept quarters. “You put everything you own on the line to run a business,”
Whitehouse, a former president of the Connecticut Car Wash Association.
“And for someone to come in and say, ‘We’re going to tax you on something you
can’t collect, just raise your price,’ is not the answer. We’re a discretionary
purchase. People need gas in their vehicle to get to work, but they don’t need
a clean car to get to work.”
natural to sympathize with the plight of industries freshly targeted for
“revenue enhancement.” But the squabbles in North Carolina and Connecticut
illustrate that a sales tax’s base is as important as its rate. And judged by
the principle of fairness, sales-tax bases fail in spectacular fashion.
handful of states tax groceries. Almost all overlook prescription drugs.
Apparel enjoys preferential treatment in several states. “Economic development”
justifies sales-tax breaks for everything from farms to manufacturers
of directed-energy weapons.
services? They regularly escape taxation, an odd anomaly noted by Joe Cahill of
Crain’s Chicago Business: “Buy a
bookcase … and you’ll pay sales tax on the purchase. Hire a carpenter to build
a bookcase for you, and you’ll pay no sales tax. Buy a lawn mower, pay sales
tax. Pay a landscaper to mow your lawn, pay none. Buy nail polish, pay tax. Get
a manicure, pay none.”
sales tax is said to be a levy on consumption, but in reality, it applies to
only some kinds of consumption. That’s why the levy should be broadened.
Huh? Widen the sales tax?
here’s why. Americans purchase very different things than they did during our
grandparents’ era. In the late 1940s, consumer expenditures were dominated by
stuff. Nearly 73 percent of earnings bought food, clothes, furniture, books,
toys, and appliances. By 2012, a dramatic shift had transpired. Services
accounted for over 60 percent of out-of-pocket spending.
switch is simple to understand, if you think about it. At mid-century, homes
were smaller. Travel wasn’t as common. Entertainment options were limited. Few
middle-income individuals and families hired housecleaners, much less SAT
tutors, dog-walkers, computer technicians, home remodelers, wedding planners, gardeners,
and eldercare aides. Washington’s free-trade
policies, which drove down the price of many goods, was another factor.
to (mostly) untaxable services from (mostly) taxable goods partially explains
why sales-tax rates are always rising -- they’re attempting to grab a bigger
share of a shrinking pie. In a 2013 analysis, California’s Legislative Analyst’s Office
found that had “spending on taxable items kept pace with the state’s economy
since 1980, the sales tax would generate the same amount of revenue for state
and local governments as it does today at a much lower rate -- 5.2 percent
instead of the current rate, 8.4 percent.”
F. Due wrote that sales taxes, once scorned as “medieval anachronisms,”
were “drawn up hastily, with little thought to their exact aims beyond raising
money, their economic effects, or the best structures in terms of the desired
purposes.” That’s a fine description of where we are today.
modernization is woefully overdue. Transitioning to a true consumption levy
(i.e., treat all sales to consumers equally) would reduce complexity and
destroy the sleazy way in which industries secure a common form of corporate
welfare. It would also expand the number of voters -- customers and
entrepreneurs alike -- motivated to keep rates low.
vets and car washes. Your services shouldn’t get special status.
the base, and cut the rate. A sound approach to all forms of taxation, and
particularly applicable to the sales tax.
D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.
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