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The bulk of the discussion at the legislative town hall meeting last week was focused on fiscal issues of one kind or another. One thing that was briefly touched on was the potential return of sales tax on unprepared food. I have always been a fan of not having that tax, because of its supposedly regressive nature and because unprepared food is generally what I spend my money on, and I see no reason to volunteer for higher taxes on it. A couple of statements in that brief discussion got my brain thinking about some different aspects of tax policy.
One statement that someone made was that when the tax on unprepared food was eliminated the stores simply raised their prices accordingly so that the savings went into their pockets rather than taxpayers. That didn’t strike me as accurate, but even if it was accurate it is no excuse to reinstate the tax – the stores would let consumers absorb the taxes on the now higher prices rather than lower the price to accommodate the tax.
Sen. Liljenquist mentioned that people don’t tend to buy luxury items in down economies. When combined with the fact that our expectations fo government tend to increase in down economies I saw why governments tend to grow endlessly – there is generally an inverse relationship between our demand for government services and our ability to pay for them. When times are tough we demand more and politicians do their best to oblige us. When times are good we tend to expand government in areas that were not previously considered crucial by eating into any taxes that exceed our recession-limited budgets. When times become lean again the once-discretionary programs are viewed as essential and demand greater sacrifice from citizens to maintain the programs that would have been considered outrageous in the previous downturn.
From this perspective it makes more sense to favor regressive or at least “fair” tax schemes where those with the least ability to pay also have a vested interest in the tax rates so that they are less likely to get extravagant when times are generally better and so that the tax revenue is generally more stable. It is simply foolish to base our most essential services on revenue sources that are unavailable when the services are crucial.
I’m not trying to argue that luxury goods should be tax-exempt, but if they form the basis of our tax revenue for essential services we will always be in for gut-wrenching decisions whenever their is a dip in our economic outlook.