Sales Taxes: The Continuing Saga

The front page of the Alaska section of today’s Anchorage Daily News sports the headline, “Sales tax plans considered for ballot.” Sales taxes are inherently regressive, so they are bad for low and middle income families because sales taxes shift the burden of taxes away from the wealthy, and onto the backs of working families. I have explained this in other blogs, and have provided some solid references in those blog entries on this matter.

In my research and discussions with various knowlegeable colleagues on the matter of the proposed sales taxes in Anchorage, a number of other troubling issues have surfaced:

1) One of the two versions of the proposed sales tax excludes services. Higher income groups purchase proportionally more services than low income groups, so a sales tax that excludes services is more regressive than a sales tax on all items. In other words, if services are not taxed, wealthier Anchorage residents will effectively be taxed at a lower rate. This shifts the sales tax burden even more onto low and middle income families.

2) Excluding services from the sales tax also ensures that the tax rate will have to be increased over time. Historically, the cost of services (such as government services) rises faster than the cost of goods. As a result, the revenues raised from a sales tax on goods alone would increase more slowly than the costs of government services the sales tax is intended to pay for. The sales tax rate on goods would have to be increased to keep pace with providing the same level of services from year to year. A gradually higher and higher sales tax rate would make the sales tax gradually more and more burdensome on low and middle income families.

3) Some of the sales tax would be paid by residents outside Anchorage, including rural residents who come to Anchroage to shop. In this way, Anchorage may export its sales tax burden to predominantly lower-income bush Alaska. This makes the tax even more regressive.

4) All the sales tax proposals include a “cap” on the maximum sales tax paid for a single item. Since higher income groups buy proportionally more high-priced items (like SUVs) than low income groups, the high income groups benefit disproportionatly from this sales tax cap. The cap makes the sales tax even more regressive and less fair for lower and middle income families.

Where is the detailed analysis by the advocates of these regressive sales taxes about the kind of impact they are going to have on Anchorage families? Perhaps there is no detailed analysis because the advocates already know that low income families will be hurt by this new tax and they don’t want to broadcast this critical, meanspirited fact. Perhaps taking a disproportionate share of their income will result in those low income workers more likely to turn to public assistance payments for support if the city is taking more of their income in taxes. It may end up costing the city and the nonprofit service agencies more in the long term to pay for public support for workers than the sales tax it collects from them. A sales tax is almost always bad public policy. Where are the facts about the real consequences for Alaskan working families?

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Posted on January 31, 2006, in Tax Policy. Bookmark the permalink. 1 Comment.

  1. Another way to view the two sales tax proposals is to look at who really benefits if either passes: While proponents tells us the new taxes will help people keep their homes by reducing their property taxes, the same tax break also goes to the owners of business property. A survey of Anchorage’s five largest commercial landowners which include Alyeska Pipeline, Fred Meyer, and BP reveals several million dollars in tax savings those corporations will enjoy if voters approve the new sales tax. Stated differemty, renters, seniors and ordinary homeowners will all have to chip in with the new sales tax to lighten the load on large corporate landowners in Anchorage. A policy quite familiar to Republicans at every level of government. What troubles me is that no one is talking about it.

    Allan Tesche

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