The reason federal income tax is “progressive” is that all other tax is “regressive”— the bulk of which, not to mention payroll tax, comes from those on the lower scale — in order to help balance or offset this regressive predominance. Of course, one could still argue that the lowest of the poor will buy the house-brand bread in supermarkets while the more well-off will buy the higher priced brand or even from a bakery but the problem is that bread is not taxed at all; and neither are the high prime cuts of meat. A truly progressive parameter would tax gourmet and luxury choices of food as indeed the house brand bread would be also wherein the poor, though taxed at the same rate would not pay near as much in tax. Of course, this will not happen. Nevertheless, most of the higher income bracket do pay more in sales taxes because of the myriad of expensive products they buy not labeled as staples.

Progressives, argue that the well-to-do should be subject to luxury excise tax on some products even though, for instance, one who buys a Lexus at $45,000 will pay a sales tax upwards of $3600 in contrast to a buyer of a $12000 Hyundai who is taxed under $1000, added to which are hundreds of dollars saved each year in the cost of running and maintenance. However, this was attempted, and later repealed, on yacht buyers and the business started going down the tubes. A better solution is to terminate sales tax altogether and mandate all states to initiate a mildly progressive income tax on the condition that most of it is deducted from the federal income tax. The effect of this would spare the small business owner the nightmare of quarterly sales tax reports and receipts turned into cities, counties and states, along with ending the unfairness of sales tax. The receipts from income tax would be appropriated proportionately to the municipalities.

The effect of a state income tax would remove some of the recalcitrants of a progressive federal income tax inasmuch as a hefty part of it would be directly returned to the states because of the state income tax write-off. Naturally, the locales are not going to favor this, since much of the sales tax goes directly to them, ignoring the effect of greater consumption favoring retail stores, all of which are levied real estate tax, and happier consumers who are less inclined to balk at their own real estate taxes, most of which go to schools in dire need of revenue.

Because the states that already have income tax initiated after sales tax had been institutionalized, its effects were perceived as additional punishment. Instead, it should be an alternative to most sales tax while perhaps retaining a tax on entertainment and/or luxury restaurants and hotels. When New York introduced income tax in the early ‘50s it did not take long for New York City to introduce their own income tax and not just residents but those who worked there. This kind of chain-reaction should not be permissible; for it leads to an exodus to other states that exercise moderation. If, however, all states are relatively uniformed in their levies, cut-throat competition, as we now endure with other nations, would end and perhaps blue, red states would be purple.

Copyright © 2004 Richard R. Kennedy All rights reserved. Revised: July, 17, 2004.