The best tax economically is broad and low. The state needs more revenue as well as serious spending cuts in the short term. Don’t simply increase the sales tax, which already disproportionally affects smaller retail businesses and poorer citizens. Instead, broaden the tax base. First, eliminate sales tax abatements. Abatements for special interests and private developers are unfair! Second, exempt only the most basic foods and prescription drugs.
The actual value of retail goods is largely derived from labor in the
supply chain. So why don’t we tax other labor and services? With the
long-term shift in the economy toward services, labor and professional
services should be equitably taxed. Exempt only necessary medical
services. As a practical matter, taxes on sales of services should be
phased in at a lower rate. Then, after experience with collections
over the first fiscal year and after the current economic crisis,
equalize the taxes by lowering the overall rate. That is, make the
change neutral over the long term. When the economy grows again, the
broader tax base will make revenues more stable.
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