I like paying sales tax.
No, I haven’t fallen and hit my head. I know what year it is, who the president is, and about half my passwords and personal identification numbers. I’m competitive playing Jeopardy!, even after two Manhattans (I’ll take “Cocktails named after boroughs of New York City” for a thousand, Alex), and I haven’t forgotten my wedding anniversary since I tried to pass off a jackalope head as a gift (Honey, I’m sure I read online that this year’s present is supposed to be taxidermy).
Having demonstrated my mental fitness, let me clarify my position: If you’ve got to pay taxes — and you most certainly do — a sales tax is the best choice. Unlike the income tax, consumers can decide how much they’ll shell out. And when considering the purchase of items that exceed your budget, you have the option of paying no tax at all by deciding not to buy them. By comparison, income taxes come out of your check at a rate you have no control over and without regard for whether you can afford it.
That said, I must add that when it comes to assessing sales taxes, Maine is mostly doing it wrong. And it handles most other taxes even wronger.
At the beginning of the month, the state raised the sales tax from 5 percent to 5.5 percent. This is the sort of move someone with a concussion might make, but anyone with the slightest grasp of economics would realize was addled-headed. Sales taxes work best when they’re broad, but not very high. Maine’s tax is narrow and creeping upward.
The largest portion of the sales tax comes from purchases of automobiles and home-improvement materials, two areas that are
highly susceptible to economic downturns. When the state’s financial situation goes south (and in Maine, there’s rarely another direction), people stop buying cars and put off renovating their homes. Sales-tax revenue dries up. But no matter how recessionary the outlook, folks don’t stop buying food (which isn’t subject to sales tax); using medical, legal, and other professional services (which also are exempt); and buying tickets to amusement parks, movie theaters, and ski resorts (which results in zilch in sales-tax revenue).
The unpleasant truth about our state’s finances is that we pay ridiculously high income-tax rates and burdensome property-tax bills because we refuse to consider expanding the sales tax — thereby capturing more revenue from tourists and rich people. We could use the extra money we’d realize from an expanded sales tax to reduce the income tax to such a tiny amount that most of us would barely notice it, and to cut property taxes in half.
Here’s how it would work. Levy a 5-percent sales tax on all retail transactions, except meals and lodging, which are already taxed at a higher rate, and tobacco and alcohol, which are likewise singled out for nasty sin taxes. Use a big portion of the new money the state would collect to pay for education, thereby removing that expense from property-tax bills. Use most of the rest to reduce the income tax.