Reshuffling the Tax Deck
Neil Downing explored the governor’s taxation panel, and beyond my complaint that it strove to remain essentially revenue neutral (rather than decreasin taxes), if we strip away the specifics, none of the proposals are very attractive in their predicted effects:
- The first solution would transfer the income tax burden from the top and the bottom to the middle and increase tax revenue by less than a million dollars.
- The second solution would also transfer the income tax burden from the top and the bottom to the middle, but it would decrease tax revenue by $3.4 million.
- The third solution would decrease income tax across the board, but the sales tax rate would remain the same and apply to more goods and services, bringing in an extra $38 million in revenue.
The direction of the shift in income tax for the two solutions that are effectively revenue neutral suggests that the tax panel didn’t look closely at the demographics concerning the sorts of people who have been leaving the state. Middle-income families — the key for productivity and growth — have been fleeing the state for years, so increasing their share of the burden would likely prove counterproductive.
Broadening the sales tax will also be counterproductive. More people will simply move their shopping over the state border, and the more aggressively the state cracks down on that, the more contentiousness will exist between citizens and their government, and the more likely they’ll be to throw in the towel and move.
Bottom line: there is no way out of this mess that doesn’t require huge cuts to government spending.