More Tax Reform Recommendations

More Tax Reform Recommendations

July 26, 2010 Posted by J. Scott Moody - No Comments

Maine taxes on the riseLast week the Maine Development Foundation released a new study on fixing Maine’s economy.  The section on Tax and Fiscal Policy looks eerily familiar to the recent debate on tax reform–from the perspective of those supporting the tax reform plan.

One item in particular caught my attention.  According to their survey done as part of the study: “Sales taxes are seen as less of an issue ranking 12th overall, 9th for small businesses and 14th for larger businesses.” (page 42)  I find this interesting for two reasons:

First, this low ranking will inevitably be used by pro-tax reform folks to vindicate their proposal to expand the sales tax.  However, their complaint with the sales tax is that the tax base is too narrow.  By definition a broader sales tax base will mean more businesses will pay it.  Don’t you think this low survey ranking is a direct result of the narrow sales tax base?  If you expand the base and hit more businesses, then more businesses will complain about it.  This survey just captures the transparency of the tax, not whether or not it is good tax policy.

Second, despite the narrow tax base, small businesses are more upset with the sales tax than larger businesses.  This differential reinforces my point that I’ve made all along that the sales tax is bad for small business.  Additionally, sales tax compliance costs are significantly higher for small businesses.