Morton J. Marcus is an economist formerly with the Kelley School of Business at Indiana University. His column appears in Indiana newspapers, and his views can be followed on a podcast: https://mortonjohn.libsyn.com.
Some politicians and others use a magic mirror to ask: “Which is the fairest tax of all?” Likewise, some economists and other social agitators look into the same mirror to ask: “Which tax, currently in use, is the most regressive tax of all?”
Both groups are answered: “The sales tax!” It’s wonderful to have such a mirror.
Some Fair Tax people are devoted to the sales tax. After all, with exemptions for the barest necessities, like food and medicine, a sales tax discourages consumption, which is a sin. They contend responsible people, regardless of income level, save. You must put away money for that inevitable day when ill-fortune brings unemployment, accident, illness, or college education. Those savings are to be invested in corporate America via mutual funds or other stock market instruments.
Sales tax proponents oppose an income tax which they say discourages work. Income of any sort is, however, the deserved reward for virtue. A progressive income tax, where the percentage of income taxed rises as income increases, is both an insult to virtue and contrary to the work ethic.
Our second group of moralists see the sales tax as regressive - - - meaning it results in the poor paying a higher percent of their income as a tax on their non-exempt consumption.
If a Hoosier, earning $10,000, buys a chair for $100, s/he is taxed seven percent and pays $107 or 1.07 percent of income. A person earning $100,000 buys a chair for $500 and pays $535 or just over one half for one percent. Where’s the fairness in that?
Fairness is a thought, a concept, a belief. It is never a fact. No instant replay can confirm fairness.
Indiana levies a seven percent sales tax with a list of items exempted. Recently, for the Super Bowl, I bought candy and nuts. The candy was taxed, but the nuts were without tax. Both are snacks. The candy was in the form of mints to freshen my breath, a desirable social objective I’ve been told. The nuts are considered nutritious food until someone comes up with contrary evidence.
Over time, Indiana has raised its sales tax and lowered its income tax. This is considered virtuous in some quarters and vicious in others. The result may be revenue neutral, but tends to favor the wealthy and rest disproportionately on the less than wealthy.
At seven percent, Indiana has the second highest state sales tax rate in the nation. According to the Tax Foundation only California is higher.
But we don’t have any local sales tax, as do 37 states, including Illinois and Ohio. The result is our ranking for sales tax rates declines from second highest to 23rd place.
Today many Hoosier localities, particularly urban centers with major shopping facilities, are seeking local sales tax options. It would open a new field of battle among neighbors.