December 30, 2007

Bold New "Use Tax" Frontiers

The Associated Press today has the story of Stephen Kahn, a Massachusetts residents who bought a plane in Massachusetts, then flew it to his Maine vacation home-- and Maine slapped him with a $26,000 tax bill.

The story is more complicated than this, of course: it turns out that Massachusetts sales tax doesn't apply to sales of airplanes. So when Kahn showed up in Maine with a tax-free plane, the state told Kahn he had to pay the state's 5 percent "use tax" on his plane.

The use tax is supposed to prevent residents of sales-tax states from buying things tax-free in states that don't have sales taxes. It's meant to be a backup to the regular sales tax. It applies to basically the same things a sales tax applies to, but only comes into play when a state's resident avoids the state sales tax by buying something tax-free in another state. So if Kahn had bought his plane in New Hampshire, which doesn't have a sales tax, then his home state of Massachusetts could very plausibly have claimed that he'd bought the plane there to avoid Massachusetts sales tax, and could have charged him a use tax instead-- if, of course, Massachusetts sales tax rules applied to planes.

But it's less clear why the same thing should happen when a guy who clearly lives in Massachusetts buys a plane tax-free because his state's elected officials have decided it should be tax free.

The answer given by Maine tax administrators (as best I can make out from the AP article) is that they think, in fact, that Kahn lives in Maine too. He's got a vacation home there, and in the year he bought his plane, the plane spent more than 20 days (excluding travel days) in Maine. And that makes him a resident in their eyes.

According to the AP story, some states go even further with their use tax on planes:
Florida assesses a 6 percent use tax on plane owners who didn't pay sales tax on their planes and bring them to Florida even once within six months of the purchase date.
The story doesn't say whether Florida has a residency requirement, or whether any untaxed plane passing through the state is subject to tax.

Leaving aside the question of whether we should feel sorry for a guy who had to pay a 5% sales tax when he bought a plane (at $26,000 in tax, Kahn's plan must have cost him over $500,000), are these states doing the right thing when they apply the use tax laws in this way?

The spirit of the use tax law is that it's designed to prevent tax-avoiding behavior by a state's residents. Kahn is at least a part-time resident of Maine, and may well have bought his plane in Massachusetts to avoid owing sales tax in Maine, but you certainly couldn't prove it either way. And you can construct a very simple explanation of why he bought his plane in Massachusetts that has nothing to do with tax avoidance: Massachusetts is his primary state of residence.

On the other hand, Maine and Massachusetts each have their rules about who can be counted as a resident of their state. Maine can make a decent case that Kahn "lives" in Maine, and should be subject to the state's tax rules. And the folks in Maine would presumably make a fairness argument by contrasting the tax treatment of this guy with a full-time Maine resident who lives next door to Kahn's vacation home. If Kahn's purchase of the $500,000 plane is tax-free, how can we justify taxing the neighbor's purchase of the same plane?

But (I think) they would be wrong in making this argument. Or, at least not as right as Massachusetts folks would be in making the same sort of comparison. That is, if Kahn's neighbor in Mass. buys the same plane (and doesn't have the misfortune of owning a Maine vacation home), the sale is tax free. So, how can we justify imposing a higher tax on Kahn than on his Massachusetts neighbor?

More generally, it seems to me that (assuming this all boils down to whether Maine can treat part-time residents as subject to the same use tax requirements as full-time residents) the real effect of letting Maine's actions stand is to deny multi-state residents the potential sales tax benefits of either of the states they live in.

That is, every state chooses to exempt certain things from each of its taxes. Massachusetts exempts groceries, clothing and, yes, planes. Maine's action basically says that any Massachusetts resident who also happens to own a vacation home in Maine should be denied the benefits of these Massachusetts tax breaks.

And, abstracting from the fact that this sort of multi-state residency is a really enviable problem to have, it's hard to defend that on fairness grounds.

December 19, 2007

ALEC Report on "Rich States Poor States": The Longest Wall Street Journal Editorial of All Time

A new report from the American Legislative Exchange Council (ALEC) purports to construct a "State Economic Competitiveness Index" with which you can rank your state on how well it "foster[s] economic growth and prosperity."

No one seems to have taken a crack at debunking its findings yet; this could be because everyone's busy during the holidays, or it could just be because no one is taking the report's "findings" at all seriously.

Here's just one quick thought: the ALEC competitiveness index is made up of 16 equally-weighted variables. But none of the variables have anything to do with the quality of state services, like, say, education or transportation infrastructure.

From a fiscal policy perspective, in fact, the ALEC index basically asks "how bad are the bad things" and ignores the general question "how good are the good things." So, for example, a state that has higher than average taxes but also has better than average schools will score absymally on the ALEC ranking, because taxes count as a bad thing but quality public education doesn't count as a good thing. Put another way, if you have two states that have exactly the same overall tax levels, one of which has excellent schools and the other of which has terrible schools, the ALEC index won't see a difference between them.

So if you construct an index of competitiveness that says taxes hurt your economic climate but public investments don't help, it's neither surprising nor useful to solemnly present a finding (as ALEC does in this report) that low-tax states have better economic climates. Sometimes the answer you get is entirely determined by the way you ask the question, and that's the case here.

The report deserves a thorough debunking, just in case anyone ever does mistakenly treat it as a meaningful study. But for the moment, all you really need to know is that the ALEC report is really little more than the longest Wall Street Journal editorial of all time (one of its two authors is actually on the WSJ's editorial board).

To drive this point home, here's an excerpt from a January 2007 WSJ editorial discussing a proposal to repeal Georgia's state income tax:
Georgia may beat Mr. Sanford to the punch. House Republicans in Atlanta have announced that one of their top priorities is to use the half-billion-dollar budget surplus as a downpayment to "dismantle the current tax code." House Republican Majority Leader Jerry Keen tells us the debate in Atlanta is between a flat-rate income tax and a plan that would "do away with the personal income tax but broaden the sales tax by eliminating 107 exemptions. We're committed to a pro-growth tax plan that announces to the country that Georgia is open for business."
A nearly identical paragraph shows up in the December 2007 ALEC report:
Georgia may beat Gov. Sanford to the punch. House Republicans in Atlanta have announced that one of their top priorities is to use the half billion dollar budget surplus this year as a down payment to “dismantle the current tax code.” House Republican Majority Leader Jerry Keen tells us the debate in Atlanta is between a flat rate income tax and a plan that would “broaden the sales tax by eliminating 107 exemptions and then do away with either the personal income tax or all property taxes. We’re committed to a pro-growth tax plan that announces to the country that Georgia is open for business,” he said.
Cutting and pasting is an author's privilege, I suppose. But the "cut and paste" approach shouldn't be confused for well-designed economic policy research.

December 15, 2007

California: Bring Back the Car Tax?

Via the 21st Century Taxation blog, news that history may be repeating itself in the Golden State.

California's historic 2003 recall of then-Governor Gray Davis, and subsequent election of Arnold Schwarzenegger, was one of the biggest tax-policy-related electoral dramas in recent memory. (And was certainly one of the most flagrant abuses of "special elections" in modern California history-- but that's another story.)

Every Californian-- including, no doubt, Schwarzenegger, who owes his job to this bit of political theater-- remembers that what drove the recall election was public anger (almost certainly fueled by out of state money, but again, that's another story) over Davis' decision to balance the state's budget by ending a state-financed cut in the annual "car tax" that he himself had pushed through back in 1998. And most Californians probably also remember that the first thing Schwarzenegger did after taking office was to restore the car tax cut.

So it might seem downright absurd to hear anyone talking about repeating Davis' tactic and ending the car tax cut. But that's what the Sacramento Bee's Dan Walters has to say in his column this week-- and he's right.

Walters points out, correctly, that Schwarzenegger's move to permanently cut the annual car tax from 2% of a car's value to 0.65% of value is simply not affordable now-- and probably wasn't affordable when he first did it in '03.

In states such as Virgina and Washington, the debate in the past decade has been more about whether an annual car tax should even exist (answer: it should), rather than what the rate should be. This doesn't appear to be the case in California, where the tax is in no danger of being repealed entirely.

The question in California is simply whether the rate cuts enacted in 1998, and permanently extended after Davis' recall debacle, were ever-- then or now-- remotely affordable. Walters makes a convincing case that Schwarzenegger has used short-term surpluses to paper over the inherent unaffordability of the car tax cut.

With those budget surpluses suddenly and spectacularly gone, a sensible approach for state lawmakers-- and the governator-- would be to put all cards back on the table, including the state-funded car tax cut. If the state can't afford to pay for the car tax cut, lawmakers owe it to their constituents-- and to the state's future-- to either repeal the cuts, or to hike some other tax to pay for it.

It remains to be seen whether lawmakers can achieve this standard of sensibility. But California wouldn't be the first state in which lawmakers were forced to eat crow by repealing tax cuts enacted during the boom days of the late 1990s-- or even the first in late 2007. Michigan lawmakers earlier this year raised that state's flat income tax rate, essentially reversing the signature tax cut pushed through by then-Governor John Engler in the late 90s.

If Michigan can come to its senses, can California be far behind?

December 13, 2007

GOP Debate: Who's Paying Too Much in Taxes?

In last night's Republican presidential debate, moderator Carolyn Washburn asked the sort of tax policy question that each candidate should have been able to really tee off on: "Who in this country is paying more than a fair share of taxes relative to everyone else: the wealthy, the middle class, the poor or corporations?"

The answers rarely touched specifically on the actual question, possibly due to poor guidance from the moderator. Where salient, the responses varied, from "the rich" (Thompson, implicitly), "not the rich" (Romney, sort of), to "not the poor" (McCain), to "the middle class" (Romney, Paul, Giuliani) to "everyone" (Tancredo). In a separate category was Alan Keyes (who I quite honestly had no idea was running for President until I read the transcript), who adopted the clever and unique strategy of spontaneously combusting in response to the question.

The New York Times has the full transcript. Here's the relevant section, very slightly edited for non sequiturs (this standard is not applied to Keyes' response, which would have had to be excised completely), including each candidate's answer to the moderator's question:

MS. WASHBURN: ... I want to go down the line in reverse order and hear from everyone very briefly, please, 15 seconds or so.
Who in this country is paying more than a fair share of taxes relative to everyone else: the wealthy, the middle class, the poor or corporations?
Starting with Mr. Keyes.
MR. KEYES: It's one of those let you and him fight questions the people in the media always want to get us involved in; because they would like to pretend that the tax question is about fighting amongst ourselves when the real sacrifice that's required from the American people we need to start sacrificing some of these incumbents who have funded their political ambition using our money --
MS. WASHBURN: Remember, we have 15 seconds.
MR. KEYES: -- who have spent overboard into deficits after promising us on the Republican side that they would limit the government, and then produced the highest budget deficits in the history of our country.
MS. WASHBURN: Senator McCain?
MR. KEYES: I think we need to stop listening to these phonies and start looking for people who will actually fulfill the words that they speak. That's what I think.
MS. WASHBURN: Senator McCain?
SEN. MCCAIN: I know that I'm happy to say low-income Americans, except for payroll taxes, don't pay taxes, but we've got to reform the tax code. Nobody understands it. Nobody trusts it. Nobody believes in it. And we have to fix it. And we can't raise taxes as our Democrat friends want.
So I don't know exactly who's paying the most of the burden, but I would say that the American people need a tax code they can understand and that they know is fair.
MS. WASHBURN: Governor Huckabee?
MR. HUCKABEE: Over 80 percent of the American people know that the tax code is irreparably broken. I would lead one to a fair tax, and that means that the rich people aren't going to be made poor, but maybe the poor people could be made rich. That ought to be the goal of any tax system -- not to punish somebody, but to enable somebody so that they can have a part of the American dream. The fair tax does just that.
MS. WASHBURN: Governor Romney?
MR. ROMNEY: I don't stay awake at night worrying about the taxes that rich people are paying, to tell you the truth.
I'm concerned about the taxes that middle class families are paying. They're under a lot of pressure. Gasoline's expensive. Home heating oil, particularly in the Northeast, is very difficult for folks. Health care costs are going through the roof. Education costs and higher education are overwhelming. And as a result, we need to reduce the burden on middle-income families in this country.
MS. WASHBURN: Okay, a little snappier, gentlemen. (Laughter.)
Senator Thompson.
MR. THOMPSON: My goal is to get into Mitt Romney's situation, where I don't have to worry about taxes anymore. (Laughter.)
Five percent of Americans pay over half the income taxes in this country. 40 percent of Americans pay no income taxes at all. I think we need to concentrate on preserving the tax cuts of '01 and '03. That's going to be a monumental battle that's going to be coming at the end of 2010.
MS. WASHBURN: Congressman.
REP. TANCREDO: Everyone that is presently paying tax, you could be -- you can make a case that they're paying too much. The reality is, of course, you need a different system entirely. We do need to move away from this archaic -- a system that taxes productivity, which is what we do, to a system that allows for a fair tax. I believe in that.
MS. WASHBURN: Thank you.
REP. PAUL: The most sinister of all taxes is the inflation tax and it is the most regressive. It hits the poor and the middle class. When you destroy a currency by creating money out of thin air to pay the bills, the value of the dollar goes down, and people get hit with a higher cost of living.
It's the middle class that's being wiped out. It is most evil of all taxes.
REP. HUNTER: The tax that we're all paying that doesn't help anything -- it doesn't go to defense, it doesn't go to the roads, it doesn't go to medical care -- is the $250 billion-plus that we pay each year not to the federal government, to the Treasury, but to prepare our taxes, defend our taxes, and for the massive cost of the IRS. That's all overhead -- 250 billion-plus dollars. What we ought to do is have a system -- the fair tax system is a good one, or a flatter tax or a simpler tax, because that young couple that pays 1,450 bucks in taxes may pay $450 to their tax preparer. That's a second tax.
MR. GIULIANI: A flatter tax, a simpler tax that you could file on a one page, as an option, would be a good idea. Reducing the corporate tax, as I suggested. Reducing income tax rates across the board, which would mostly benefit the middle class. That's where the focus should be.
But we've got to reduce taxes across the board, and we should give the death penalty to the death tax. It really is a very unfair tax.
MS. WASHBURN: Thank you.

The NYT has the full transcript here. NPR's coverage is here.

Giuliani: Let's Increase Corporate Taxes

Well, that's not exactly what he said. But it's apparently what he meant.

In last night's Republican presidential debate (yes, another one) from Iowa, presidential candidate Rudolph Giuliani responded to a fairly open-ended question about fiscal policy strategies by calling for a reduction in the corporate tax rate, which (it turns out) would actually bring in MORE money, not less:
Right now we should reduce the corporate tax. We should reduce it from 35 percent to 25 percent. It would be a major boost in revenues for the government.
In other words, a tax hike. He's almost certainly wrong, of course: there is no credible evidence that corporate tax rate cuts would pay for themselves, let alone providing a "major boost" to tax revenues. But it would have been fun to hear a follow-up question about whether Giuliani really believed what he'd just said-- and, if so, whether the other candidates on the stage would find such a tax hike acceptable.

Clinton And the AMT: WSJ Half-Truths Get Even Less Truthier

The Wall Street Journal's editorial board this week, in its discussion of how to reform the individual Alternative Minimum Tax (AMT), asks itself the bold question: if we start out by telling a half-truth and make it even more misleading, what do we end up?

The answer: an outright lie.

We've noted before that the WSJ guys enjoy blurring the truth about the AMT's history. But they now clearly think "blurring" is not enough.
RE the apparently all-important question of who should be blamed for the impending AMT mess, here's what they say in a December 10 editorial:
The AMT was never supposed to hit the middle class, and it only does so now because the Democrats who designed it failed to index it for inflation and raised AMT rates under Bill Clinton in 1993.
This is laughably wrong for two reasons, in descending order of importance:
1) The Clinton AMT changes of 1993 actually reduced the growth of AMT liability.
2) Failure to index the AMT for inflation is a bipartisan failure, equally attributable to the folks who run Congress now (Dems) and the folks who ran it for most of the last two decades (Republicans). To pin this excusively (or even primarily) on Democrats is both pointless and wrong.

Thing #2 is pretty clear, and is too obviously politically motivated to spend much time with. Thing #1 is worth explaining a bit. Here goes:

The idea of the AMT is simple: we've got a regular income tax that has a top tax rate of 35 percent (now) and a ton of loopholes. Now, if Congress could repeal all the loopholes, the rates could be lower. But they have never been able to agree on eliminating the loopholes, so instead they created a backstop tax, the AMT, that doesn't have as many loopholes and has a much lower rate. So upper-income Americans either pay higher tax rates applied to a narrower base, or lower tax rates applied to a broader base, whichever is higher.

The thing to take away from this is that the regular tax and the AMT act in concert. If you want to keep the two working together, changes in the regular income tax need to be accompanied by changes in the AMT.

Now the big tax bill in 1993 did three things that affected the AMT.
1) it increased the top regular income tax rates.
2) it increased the AMT tax rates, to keep pace with the regular rates.
3) it increased the AMT exemptions, to help keep middle-income families out of the tax.

Of course, the WSJ conveniently omits things #1 and #3 in this list, and just says Clinton hiked the AMT rate. Which makes it sound like Clinton hiked the AMT.

But, as the Tax Policy Center has demonstrated, when you look (sensibly) at the net impact of all the 1993 tax changes in the AMT, what you see is that the Clinton changes actually reduced the growth of the AMT.

The TPC report also notes that, aside from inflation, the biggest factor contributing to the AMT explosion is the Bush tax cuts.

And this makes all the sense in the world. If the regular tax and the AMT are working in concert, and you cut the regular tax rates without cutting the AMT rates, OF COURSE you're gonna push more people into the AMT. That's just the way it works. But the Bush people did it, and they did it knowingly.

So let's recap: there's two kinds of policy changes that people are talking about that affect the AMT. One has to do with inaction (the lack of indexing) and the other has to do with actions (the Clinton 1993 tax changes and the 2001 Bush tax cuts).

The WSJ correctly notes that inaction is part of the problem, so kudos to them for that. All they're doing wrong on this front is saying that it's all the Democrats' fault.

But on the "action" side, the WSJ is completely ignoring one thing that obviously, glaringly, undeniably pushes more people into the AMT (that is, the 2001 Bush tax cuts), and is dishonestly mischaracterizing the other thing (the 1993 Clinton tax changes) in a (wrong) effort to say that it's all the Democrats' fault.

Politically motivated newspaper people must, I magine, face a constant struggle between telling their readers things that are true and telling them things that will help score political points. There's often a tension between these goals. The WSJ editorial board's party line on the "Clinton AMT" may ultimately help achieve their "scoring political points" goal, if only by making people more confused about taxes. And I'm sure they'll be happy about that.

But it also subtracts from the sum total of human knowledge. Not something you can often say about a newspaper article-- that you are dumber or less-well-informed after reading it than you were before you read it. But that's exactly what the WSJ has achieved with their latest Clinton-AMT screed.

December 05, 2007

Mike Huckabee's Tax Record

An interesting subtext in the battle between Republican presidential hopefuls has been the state tax record of the major candidates. Mitt Romney and Mike Huckabee each have track records you can look at from their time as governors, and Rudy Giuliani ran the city of New York, which has a budget rivalling some states. And each of these three have drawn some flak from the others (most of it B.S.) for being "tax hikers" during the debates so far. But the developing story around Huckabee's record is by far the most interesting (and infuriating).

Critics of Huckabee are now painting him as a tax-and-spender because he signed into law (and expressed approval for) state tax increases during his tenure as governor of Arkansas. This is, on its face, pretty aggravating, because Huckabee had some pretty valid reasons for supporting tax hikes. In 2003, when the state legislature voted to temporarily increase the income tax and permanently increase the sales tax, Arkansas had essentially been told by the state's highest court that it was violating basic constitutional guarantees by not adequately funding K-12 education-- and that they had to fix this problem by coming up with more money for education.

Anyway, there are extenuating circumstances here, so it's quite simplistic to chastise Huckabee for being willing to consider tax hikes at a time when the state was basically flouting its own constitution.

In fact, as George Stephanopoulos noted in an interview with Huckabee on the morning talk shows this past Sunday, even if anti-taxers are correct in citing a basic disjunction between what Huckabee did as governor and what he says he'd do as president, they've actually got the problem backwards. The real question is not why he spent like a drunken sailor as governor and is holding the line on spending as a presidential candidate; the real question is why a guy who comes off, overall, as pretty reasonable on fiscal policy issues as a governor is willing to assert "no new taxes" today.

Here's the exchange from This Morning:
GEORGE STEPHANOPOULOS: Let me move to your record on taxes in Arkansas, which is also coming under a lot of scrutiny and great criticism from this group called the Club for Growth, which is now starting to run ads in Iowa about your record. Here's part of it.
(Plays clip of Huckabee) "There's a lot of support for a tax at the wholesale level for tobacco, and that's fine with me. I will very happily sign that. Others have suggested a surcharge on the income tax. That's acceptable. I'm fine with that." (End clip)
STEPHANOPOULOS: And the tax burden in Arkansas did go up during your tenure from about $1,900 per person to $2,900 per person over 10 years and also an overall increase of about $500 million. So how do you plead to the charge of raising taxes?
MIKE HUCKABEE: Well, first of all, I plead to the charge of cutting taxes 94 times. I also recognize that the income tax was the same when I left office as it was when I started. The overall tax burden, according to the US Department of Commerce, state and local taxes in my state in the nearly 11 years I was governor went up by 1.1%....[T]hat was a put up or shut up moment as I spoke to the legislature. If you play that whole speech, what you would see is that the context was we were days away from a budget shutdown that would have closed the government in Arkansas. We had had an impasse on the budget.
I was taking various positions of here's how we can fix this budget crisis, and every time I said this might work, there would be a press conference by some of the Democrat legislators who were saying, well, if that's what the governor wants, we're against it. So what I did was go to the legislature and I said, okay, you don't like any of my plans, fine, let's come up with yours and I started listing what some of theirs were. And the context of that speech was you want a surcharge, you want a sales tax, okay, but we've got to have a budget, people. We've got to come up with a way to keep state government working. We've got people in nursing homes. We have schools to run. We have roads to take care of. And we can't afford a complete meltdown of the government.
STEPHANOPOULOS: But if that's the right...
HUCKABEE: So if you don't like my ideas, let's get yours out there.
STEPHANOPOULOS: If that's the right thing to do as governor when you're facing a crisis, why wouldn't it be the right thing to do as president? Now in this presidential campaign you've signed a pledge saying you wouldn't raise taxes under any circumstances.
HUCKABEE: Because I don't think the federal government needs more money. If you look at the spending issues that we have, it's pretty evident to me that we need some policy changes more than we need some tax changes at the federal level. So it's a different thing when you're running a state government and you have to balance your budget, you have to make sure that you're living within the means, and the second thing is, you're constantly barraged by federal programs pushed down your throat. That's why nearly every one of the governors, 43 governors, I believe, maybe 48 face serious budget shortfalls in '01/'02 because of the combination of the recession, federal mandates that were unfunded, as well as the impact and effects of 2000 - of 9/11.

In other words, Huckabee is saying it's OK to take irresponsible fiscal policy positions as a presidential candidate because, as we all know, federal policymakers don't have to live within their means.

Stephanopoulos goes a bit overboard here by criticizing Huckabee's allowing the per-capita tax load to increase during his watch-- after all, when per capita income goes up, per capita taxes will go up too, even if you don't change the tax system at all-- but on the narrow question of consistency, George has it exactly right: if there's mud to be slung at Huckabee for taking irresponsible fiscal policy positions, it's not what he said then, it's what he's saying now. No one who's willing to take a "no tax" pledge-- especially at a time of large, persistent budget deficits-- has any business running our country.

December 04, 2007

Florida: Rubio on User Fees

Today's excellent Daytona News-Journal editorial on the likely user fee explosion that would result from passing the Florida legislature's January property tax ballot measure includes an interesting rationalization from Florida House Speaker Marcio Rubio. Here's Rubio explaining why it would be OK if local governments made up for unaffordable property tax cuts by hiking a variety of user fees:
The West Miami Republican told the South Florida Sun-Sentinel newspaper that such fees are fair. "Fees are clear; they're not hidden," he said. "If you don't like that city and county officials are raising them, you can vote them out of office on Election Day."
But exactly the same thing can be said of local property taxes. And in fact, the transparency and accountability of property taxes is what makes so many advocates of local control very protective about this revenue source.

This isn't to say, of course, that Florida's property taxes are currently all that transparent--they're not. They're unfair and unpredictable, imposing unjustifiable tax penalties on first-time homebuyers and rewarding people for nothing more exceptional than staying in the same home for a long time. But these flaws can be remedied quite easily if lawmakers are willing to renounce the "Save Our Homes" tax break that makes it all go wrong.

Moreover, user fees are actually fairly sneaky, in the same way that the sales tax is sneaky: it nickel-and-dimes you in a way that makes it hard to gauge the overall annual impact on your pocket book. In other words, you can make a pretty good case that user fees are actually less transparent than the property taxes Rubio wants to get rid of.

December 01, 2007

Florida Panel: Tax Services. Really.

The Florida Taxation and Budget Reform Commission, which meets once a generation (true) to recommend structural changes to Florida's tax system, has come up with a good one: expanding the sales tax base to include more services.

This very sensible idea has an unfortunate history of inducing groans wherever it's brought up; just ask lawmakers right now in Maryland or Michigan.

But that doesn't mean it's a bad idea: it's not. It just means that implementing a sales tax on services would require taking unwarranted tax breaks away from very specific groups who would like to keep them, thank you very much, and who tend to have lobbyists on call 24-7 ready to defend these tax breaks. And that's a tall order.

Florida lawmakers probably know this better than anyone, since they were among the first (and only) states to pass (and quickly repeal) something approaching a comprehensive sales tax on services, back in the late 1980s. But at least one member of the commission who remembers those days, Martha Barnett, thinks the bitter experience from the last go-round should be used to help push through this always-good idea now. The problem last time, she thinks, was that lawmakers rushed the process:
"We tried to do too much too fast with too little information," she said.
Lawmakers in Maryland and Michigan would probably nod their heads in agreement on that one, as well.

It's easy, of course, for an unelected body such as the Commission to propose something as politically volatile as a services tax. And if lawmakers act on the Commission's recommendation, they can count on a lot of political opposition.

But it's still the right thing to do. Check out Fair Tax Florida's policy brief on taxing services for more information.