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A modest proposal: Variable rate sales taxes

Fri, Oct 22, 2010

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Here’s the dilemma of Colorado local governments: When they really need money, the voters won’t give it to them.

Consider the failed property tax increases that city council referred to the electorate during the past year.  Both were turned down, and neither should have been presented, had council members considered one of the fundamental principles of politics: don’t raise taxes during a recession. If the voters have the power to nix the increases, they will.  And if they don’t, they’ll fire you at the next election.

Yet, as government – enabling wonks argue with reason, demands upon government during a recession tend to increase, not diminish.  Crime increases, the demand for social services increases, potholes have to be filled, streetlights have to be turned on (oh well, forget that one!) and fires have to be fought.

Yet one of the best ways to mitigate the impact of recessions upon local businesses and residents is to reduce taxes, not increase them.

So here’s a suggestion.

Create a variable-rate tax structure.

At present, Springs residents pay 7.4 percent in sales tax on all taxable purchases. The money is split between the city, the county, the state, and entities such as TOPs, PPRTA, and the public safety sales tax.

Suppose that the onset of a recession automatically triggered a temporary rate cut, reducing the overall rate by 20 percent. That would create a nice little stimulus program all by itself, encouraging everything from automobile sales to home remodeling.  Governments which would be affected by the cut would have stand-by authorization to issue debt to close budget gaps.  That’d prevent deep cuts in local services.  Once the recession had ended, rates would gradually return to their former level, and the debt thereby incurred would be paid down.

This plan could only work in states such as Colorado, which haven’t drowned their residents in a sea of recklessly incurred debt.  It would have to be designed with multiple safeguards to prevent such behavior.  Properly structured, it would prevent governments from cutting vital services and deferring maintenance during economic downturns, while giving the hapless taxpayers a break in tough times.

I know, I know – it’s a utopian scheme that will never work.  We can’t trust government, we can’t trust elected officials, we just have to cut and cut until…well, until there’s nothing left.

Then, to paraphrase Sarah Palin, we may well ask  ”How’s that drowning government in a bathtub thing workin’ for ya??!!”

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1 Comments For This Post

  1. peter Says:

    not sure if your quote “This plan could only work in states such as Colorado, which haven’t drowned their residents in a sea of recklessly incurred debt”

    is correct.

    If you look at unfunded pension liabilities on state, county and city level i would be careful to make such statement. These are not counted as debt yet but should be as we have no way of fullfilling those with current government income and expenditure… so one has to change
    http://www.kellogg.northwestern.edu/faculty/rauh/research/jep_20090813.pdf