Highly visible sales taxes keep lawmakers' spending dreams in check

Highly visible sales taxes keep lawmakers' spending dreams in check

March 5th, 2012 in Opinion Free Press

Tennessee benefits from having no general income tax, even though that necessitates higher state and local sales taxes to raise revenue.

The Tax Foundation recently determined that Tennessee has the highest combined state and local sales tax rates in the United States.

The state levies a 7 percent sales tax, and the average additional local sales tax rate is 2.45 percent. That means an average sales tax of $9.45 on $100 in purchases.

No one doubts that is significant to consumers in Tennessee. But it is still preferable to imposing a general state income tax.

One of the chief benefits of a sales tax is that it is highly visible. Every time you make a purchase of one of the many goods to which sales taxes apply, you see the taxes very clearly -- both on your receipt and in the difference between the shelf price of the product and the higher total that you actually pay at the register.

And that awareness serves an important function. It is a constant reminder to taxpayers of just how much of their money is going toward the true cost of producing a good versus how much is going to government. That acts as a check on lawmakers who might be more willing to raise other, less visible forms of taxes because they would have less fear of a political and electoral backlash for doing so.

It is true, of course, that income taxes at the federal level and in states that have an income tax are broken out and visible on workers' paychecks. But many people are paid only every other week or perhaps only monthly. So they simply do not "see" those taxes nearly so often as they see taxes on the regular purchases they make.

Some taxes are even less visible. It's common to hear complaints about the price of a gallon of gasoline, but consumers rarely stop to think that high federal and state gas taxes are hidden in the prices listed on the gas station billboard. That makes it more likely that they will place all the blame for high gas prices on "Big Oil" -- not on "Big Government."

And starting in 2013, ObamaCare will slap a 2.3 percent excise tax on manufacturers of medical devices to help pay for the costly law. That is a tax on manufacturers' gross revenue, and it too will not be very visible to the general public.

But the fact that a tax is practically invisible doesn't mean it can't do harm. Because the public won't readily see the ObamaCare excise tax, for instance, it may not seem to make sense when medical device manufacturers lay off employees, as some are doing in anticipation of the tax or expect to have to do once it is in place.

What less visible taxes do is allow government to take more and more money out of the private sector -- and then blame the private sector for the lack of economic development that results in part from those very taxes!

By contrast, sales taxes are "a transparent way to collect tax revenue," said Scott Drenkard, an economist for the Tax Foundation. "While graduated income tax rates and brackets are complex and confusing to many taxpayers, the sales tax is easier to understand. People can reach into their pocket and see the rate printed on a receipt."

So while nobody may "like" Tennessee's average 9.45 percent combined state and local sales taxes, at least we can keep sales taxes in sight and have a clearer idea of how much of our money is flowing into government.

That transparency encourages accountable spending by government, which is worth its weight in gold.