Rethinking Taxes

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There are two pieces currently on the front page talking about taxation, specifically focused on sales tax and sin taxes.  I’m going to throw out a different perspective and make an argument that may surprise a few people.

I’ve been trying to run the numbers on this to get a clearer perspective on it– I would have written this much sooner had I been successful at that, but I’m still trying to find the numbers I need to be as thorough as I’d like with this.  So until then, treat this as a “this is something I’m pondering” rather than “this is a serious policy proposal.”

So what if we were to eliminate sales tax, at least for certain types of business or sales?

Mind you, I’m not coming at this from an anti-tax perspective.  I very much believe that if we eliminate the Vermont sales and use tax, we’d have to make that up elsewhere.  One option would be increase in income tax.  Another would be an increase in corporate taxes, or possibly Motor vehicle fees.  It might require a combination of those things.

What I have worked out is that if we were to eliminate sales tax entirely, we’d be able to make up for it by doubling Gasoline taxes, Motor Vehicle Fees, Purchase and Use Fees, Corporate Taxes and Insurance Taxes, which is kind of a lot of tax increases.

But there are other options:

  1. eliminate sales tax for any product which is manufactured and pays taxes to Vermont;

  2. eliminate sales tax for any store which has paid taxes to Vermont for the previous five years;

This could also be used as an enforcement tool– businesses which get the sales tax exception could lose the exception if they’re convicted of selling cigarettes or alcohol to minors.

I want to be clear: I’m not anti-tax.  I’m not even anti sales tax.  But I do have concerns about regressive taxes that unfairly go after the poor.  Taxing purchases as opposed to income has two big problems with it.  It (a) taxes the poor unfairly and (b) fails to stimulate the economy.

Right now, we want people to be spending money and exchanging goods.  But currently, most people I know will go to Keene or Hinsdale to do Christmas shopping in order to benefit from New Hampshire’s zero sales tax.  That fails to help Vermont’s economy or tax base, and it puts money that could be going into Vermont’s coffers into New Hampshire’s.  

But if we could increase local purchases from local companies by eliminating or reducing sales taxes (provided we still replace that income somewhere else) we could actually benefit from it, not by just eliminating sales tax and magically increasing revenue, but by replacing regressive taxation with progressive taxation and stimulating the economy in the process.

14 thoughts on “Rethinking Taxes”

  1. …I’d have no problem with refusing to reduce sales tax for cigarettes, alcohol or even sugar drinks.  I get the arguments about sin taxes, from both sides, and while I’m not sure if they help or not, I think there’s less of an issue if we reduce other sales taxes than if we increase taxes on those items.

  2. Of looking at other tax models. Sales taxes are regressive, so to the extent we rely on them we are putting the cost of government on lower and middle income people, and taking it off more affluent people.

    A more progressive income tax would do the opposite.

    I haven’t researched this, but I think there would be constitutional problems with a tax structure that favors Vermont made products and differentially taxes products from outside. The Commerce Clause vests in Congress the power to regulate commerce among the states. I’m concerned that the Vermont-made exemption would be seen as the same idea as the protective tariffs that states adopted under the Articles of Confederation that actually were a major impetus for the Constitution.

    Maybe someone who spends more time on tax policy will have some thoughts about this.

  3. It should be noted somewhere that NH has a gross receipts tax.  In other words, the seller of the goods pays a tax.  I don’t know the extent of it and how it compares in total $ to the VT sales tax but maybe it makes sense to reduce the sales tax and put in place a gross receipts tax like NH to be more competitive, at least in appearances?

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