Friday, September 23, 2005

Editorial: Expanding the tax base

I've been reading recently about states (Pennsylvania and California in particular, but others as well) that are considering expanding their tax base by taxing more services. Part of the deal is that the politicians will reduce other taxes, like property taxes, or reduce the general sales tax rate. There are obvious issues here with taxing services, but enough states already do this so it isn't new ground...we know that it can work, if not well.

However, what isn't mentioned enough is the more cynical perspective. Let's say a legislature expands the tax base by hitting services, but they offset this by reducing the general rate or dropping some property tax. But then, in a couple of years, when the state has another fiscal crisis (and you know they will), they simply raise the tax rate back up to where it was or reinstitute the property taxes. The ultimate result is no savings for the taxpaper - in fact it WILL be a tax increase.

Expanding the tax base is a rocket-sled to higher taxes. If not now, then later. Voters shouldn't allow politicians to expand a tax base based on a promise that other taxes will fall. They might temporarily, but they WILL go back up. We're talking about trusting politicians here. If a legislature wants to expand the tax base, they should be honest about it (yeah, sure) and not promote it with the promise of a reduction in other taxes. Because, long term, there will NOT be any reduction in other taxes.

In a previous life, I sold accounting software. During that period, I went through a couple of "commission plan restructurings." When management presented the new plans to us, they ALWAYS said that the objective was to make us more money. Because of my accounting background, I knew the real reason - to cut their commission costs. When you hear talk by a politician about "restructuring" the tax base, it means ONLY one thing, higher taxes in the long run.

Whew. Glad I got that out of my system.

Don't have to read the disclaimer on this one.


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