April 28, 2008

California: Smart Sales Tax Reform Isn't Dead Yet

When it comes to sales tax reform, the policy answers are pretty straightforward: Unless you've got a really good reason to do otherwise, whatever people buy should be subject to tax. It shouldn't matter where you buy it (on the 'net or in a store); it shouldn't matter what color or size it is. Individual purchases should be subject to sales tax. Period.

So from a policy perspective, it's not especially surprising to see this sort of idea emerging from California: Judy Chu, the chair of the state's Board of Equalization, is recommending expanding the state sales tax base in a way that could yield up to $10 billion a year.

From state lawmakers' perspective, the main reason for doing this is adequacy. Since $10 billion is the ballpark estimate for next year's state budget deficit, anything they can find to plug that hole will be welcome.

But Chu is telling a story that's much more about consistency and fairness-- and she's right:"We tax exercise equipment, but we don't tax health club services. We tax movie rentals, but we don't tax movie admissions," Chu said.

Of course, tax reform isn't just about the policy-- it's also about the politics. And judging from recent experience in Maryland and Michigan, the politics are a lot murkier than the policy on this issue. In each of these states, recent efforts to expand the base have been almost immediately repealed. Our Tax Justice Digest takes a quick crack at explaining why reform efforts failed in these states here. For more details on how to broaden your state's sales tax base, check out our policy brief here.


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