Senator Ann Rest, DINO, New Hope, wants to shift partly from income tax and towards the sales tax

[progree]

Last edited Thu Apr 18, 2013, 06:15 PM - Edit history (2)

Senator Rest is Chair of the Tax Reform Division Committee and Vice Chair of the Taxes Committee, so she's not "just any senator" when it comes to taxes.

My email to Sen. Ann Rest

Subject: Taxing local labor is, yes, a reflection of the 21st century economy
Taxing local labor (by a sales tax on services) is, yes, a reflection of the 21st century economy – an economy with soaring levels of inequality. The sales tax is the most regressive of the major taxes, and you seem bound and determined to increase it, and worst yet, to do so in a way that taxes local labor. In contrast, sales tax on goods, particularly non-food items, is a tax mostly on out-of-state and overseas products, though still highly regressive.

(this was in her newsletter) [font color=blue]“I am disappointed that the House DFL appears to have little interest in modernizing our tax systems to reflect a 21st century economy and re-ordering the tax burdens in a comprehensive way. If not now, when?”[/font]

Hopefully never, never, never.

Her Response:

Dear Mr. _______

We are a service economy and have been for some time. Our tax systems do not reflect that. Lowering the rate and broadening the base would stabilize the sales tax system. Ideally, we should move away from taxing work by lowering the income tax rate on individual wages and move toward more reliance on a consumption based system which reflects the 21 st century. Economists and tax policy analysts tell policy makers over and over that this move would make our systems more [font color = red]equitable[/font]. I continue to applaud the governor for his initially bold proposal in this direction.

{emphasis added by Progree. [font color = blue]On edit I double-emphasized "equitable" and wonder now what she means by that -- I had first assumed meaning in the direction that lowered after-tax income inequality, but I think she's obsessed with other ideas of "equitable" like people getting services are getting a free ride on the backs of people buying goods. Meanwhile inequality is soaring, but hey, let them eat cake -Progree}[/font]

Ann Rest

Senator Ann H. Rest
235 State Capitol
St Paul MN 55155
651.296.2889
annr%senate.mn (replace "%" with "@" - a modification I made -Progree)

My response:

Subject: Please point me to something that shows a shift from income taxes to sales taxes is more equitable

As it currently stands in Minnesota:

1. The sales tax is the most regressive of the major taxes

2. The income tax is the most progressive of the major taxes – sharply progressive (I’ve seen the studies of Minnesota’s tax system and how much is collected from various income brackets in effective tax rates by the various categories of Minnesota taxes)

3. We have SOARING INEQUALITY

And yet you want to shift away from the income tax and towards the sales tax?

“Economists and tax policy analysts tell policy makers over and over that this move would make our systems more equitable.” – I have never heard that or seen that. Sounds like garbage from some right-wing think tank.

The devil is in the details – it may very well be possible to shift to a system where more is collected from sales taxes and less from income taxes, and be more equitable. But it would have to be a radically different system, not just tweaks to the current system. I don’t know how in the heck a consumption tax could be anything but regressive – lower income people spend a higher proportion of their income on consumption than do higher income people – unless one adopted a scheme where sales tax rebates were given based on income, and that would make it a hybrid sales tax – income tax. To make such a hybrid into a progressive tax, the income part of it would have to be the bigger part of it.

Or try to tax “luxury goods” at a higher rate than more basic goods. That failed miserably at the federal level both politically and as far as results back in the Clinton administration.

But I haven’t heard any such proposals. The only proposals out there are changes that would make the overall Minnesota tax system more regressive.

In many states, the shift from income taxes to sales taxes is being driven by the RepubliCONs. I am horrified that here in Minnesota, it is DINOs driving it.

[patrice]

1. Exempt appropriately identified necessities? Then use the rest of the revenue to fund universal FREE

education the same way, at the same proportion, as we fund the military????

Please don't attack me; just brainstorming here . . .

[progree]

2. Yup, that will help

In Minnesota 3 basics are exempt from the sales tax (roughly speaking):

* Food bought in grocery stores etc. (but not food in a restaurant)
* Clothing (Dems are trying to get rid of this exemption or whittle it down, one proposal is to tax clothing items selling for $100 or more which would be less objectionable to me than a lot of other taxes)
* Prescription drugs
* Services

I'm not an expert on this, so maybe somebody can jump in here with more info.

Anyway that's pretty much the obvious first choice on basics. (Services, like haircuts, auto repair, lawyers, tax preparers, medical, dental, veterinarian, and any other service I can think of are exempt but that's what the DINOs want to change (not all of the ones on my list in the last sentence). Obviously some services would be considered "basic" and others not.

Anyway, Senator Rest (who is Chair of the Tax Reform Division Committee and Vice Chair of the Taxes Committee, so she's not "just any senator" when it comes to taxes) doesn't seem to be thinking along these lines, judging from her newsletter. Rather its to "broaden the base", and unfortunately raise more revenue from sales taxes (the holy balanced triumverant argument of how there must be a "balance" between sales taxes, property taxes, and income taxes, and supposedly sales taxes has fallen to below where it should be as a share of the total, IN THEIR VIEW).

So yes, your idea is a good one, but its hard to expand the above list much without getting into a battle about what's basic and what's not -- buying a car (kind of essential in an area with little or no public transportation to get to work ... ), Internet service (gasp!), and if one extends the "basic list" too much, will cut into revenue, or will have to raise taxes substantially on so-called non-basics. And overall, very hard to make a consumption tax anywhere near as progressive as the current income tax. One reason the U.S. adopted the income tax in 1913 by amendment to the constitution, and likewise most states, was that otherwise the wealthy were taxed at a lower rate than the non-wealthy -- yeah, I know, we still have that problem, but it was worse before.

Free universal higher education seems problematical to me, since those getting 4 year degrees at good universities are subsidized more than someone getting a 1- or 2- year degree or certificate at a votec ... and that accentuates inequality (but then one could have a modest surcharge on income taxes for the rest of one's life for those who received subsidized higher education, depending on both income and the amount of the subsidy .... ). Anyway, I think free universal education should be financed by raising progressive taxes, not by raising regressive taxes.