Imagine that, Republican controlled states are taking the lead on tax reform in part to fight the overburdening Federal tax system and recent tax hikes.
In states where Republican control has been consolidated with GOP legislatures and governorships the tax reform movement is taking shape. Louisiana Governor Bobby Jindal is ending state income and corporate taxes relying on sales tax for revenue. The movement is taking shape in Kansas, Oklahoma and North Carolina as well.
Tax increases are the doom for pro-growth economics so it’s up to states to take the lead in attempting to qualify their areas as low tax havens that encourage business to invest, create jobs and economy.
Using sales tax or consumption tax has long been touted as a way to relieve income tax burdens and to spread taxes over a wider swath of individuals. Everyone that purchases non-food goods would become a player in paying taxes, with those spending more would contribute more in tax payments.
For example, high-end purchases would contribute more to the tax base than lower-end buying. The so-called wealthy and rich would still pay more in taxes but people who currently pay no tax would then become participants in tax revenue contributions. Critics claim this is a regressive scheme punishing those in the middle class and poor.
Thirty-seven of the 50 states now have single-party control of legislatures and governorships: 25 Republican, 12 Democrat. Tax reform at the state level faces less partisan gridlock. Some states may tax food and I wouldn’t agree with that method but other sources or services may be targeted to make up for lost income tax revenue.
Historically, states with low or no state income taxes performed better economically. A Cato Instituted analysis of tax impact on economic growth demonstrated that higher marginal tax rates had a negative impact on economic growth in the states. Jurisdictions that imposed an income tax to generate a given level of revenue experienced lower rates of economic growth relative to jurisdictions that relied on alternative taxes to generate the same revenue.
Taxes have been used to shape behavior so sales tax income may shape the buying habits of people and make the more in control of their purchases to personally manage their tax burden. When the state or federal government controls the tax burden the individual has less control but higher taxes and less disposable income do force people to purchase less which has a direct effect on economic conditions.
In the end, if politicians at all levels don’t balance their budgets and cut spending responsibly the changing the way tax is collected will have little chance of succeeding. States may very well do a better job at changing the economics at the local level by attracting business but as long as the federal government remains irresponsible and corrupt the people will still suffer.
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