Sales Taxes as a Source of Funds for Government Services
Yesterday in response to my post on the upcoming election and the ballot measure for a sales tax to help fun transit operations in the county & city, the following comment was made by regular reader ‘Southsider:’
Yes the City sales tax will go up a like amount resulting in a cumulative tax of roughly 10%. A figure I find staggering. I can recall when it was 3 cents on the dollar. What are the voters thinking I’ll never understand.
All sales taxes should be sunseted and revoted upon every 5 years.
To be clear, the tax in Prop M does sunset – after 20 years not 5. But the point is a valid one — we can’t fund all local services through sales taxes. A dedicated transit tax I support but I agree we need to reevaluate our entire tax structure. We tax ourselves to provide services for ourselves. How & what we tax is where the difference comes into play.
The primary forms of taxes we pay are income, property & sales. The city earnings (income) tax is not popular, but what tax is? Other taxes include the gas tax — a flat rate based on volume not a percentage of price; utility taxes, hotel/ticket taxes. Related are fees we pay such as a business license fee.
The gas tax isn’t what it used to be, with the federal trust fund running dry. Efforts to reduce fuel consumption reduces the funds long used for infrastructure. Often the feds help with capital funds but not those for operations & maintenance. This is why we often see infrastructure allowed to deteriorate and then a major project to start the process over with new infrastructure.
With Community Improvement Districts, Transportation Development District and such it is easy to suddenly have a local sales tax rate that is “staggering.” So how do we rework the system to get the funds we need to provide the infrastructure & services we want and demand?
In the case of the tax for Metro it is funding of employee pensions driving some of the projected shortfalls. We can’t take away people’s pension, this is an obligation we have to them.
I’m no tax expert, I don’t have the solution to this issue. I do agree that communities should examine priorities and how those are funded. In the meantime I hope that County voters approve Prop M – doing so will raise about $80 million from the county and $9 million from the city each year.
In theory, I agree. IF we had strong leaders, who were able to manage government in a businesslike manner, we wouldn’t need dedicated sales taxes. The reason we do is that unless they are, they’re subject to random reallocation. One big reason Metro’s in the bind that it’s in is the “$10 million that St. Louis County has shifted to roads from transit.” (today’s P-D).
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The other half of the equation is the proliferation of TIF’s, in both the city and the county. While sales tax collections have gone up roughly with the rate of inflation over the past decade, the money actually going to Metro has remained essentially flat, as much of the increase has been redirected to pay off the infrastructure costs associated with building (the zero-sum game of) new retail.
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Finally, I question your assertion that “We can’t take away people’s pension, this is an obligation we have to them.” If private industry can and is (http://www.gm.com/corporate/employees/retirees/pdf/Retiree+Letter.pdf), why should public sector employees be treated any differently? I’m a baby boomer, so I’m more than a little concerned about the future of Social Security and Medicare, but taking anything “off the table” when it comes to balancing a governmental agency’s budget is exactly why taxes continue to go up. Sometimes hard, even unpleasant, choices need to be made, and protecting sacred cows simply isn’t part of a fair solution.
1. You should all look at the fair tax. http://www.fairtax.org
2. I am also a boomer. Even though I am roughly half way through my career, I would be more than happy to forgo my social security benefits if I am allowed to opt out of the “systemâ€. Congress allows its members to do it…why can’t I?
It’s funny, as the Federal government continues to try and cut income taxes and even gives us rebates to try and stimulate spending, our local authorities continue to raise our property and sales tax to take it right back.
I use the bus to commute to and from work everyday along with some other occasional trips throughout the month. Looking online, Chicago’s system just had to cut $40 million from their budget for next year. They charge $2 full fare for a bus ride (no transfers) while we are at $1.75. Their monthly pass is $75 to our $60. NYC is $2 as well and $5 for an express bus.
Of course, Washington, DC is $1.35 for a normal trip (with transfer) and $3.10 for an express. Their rail system also charges different rates based on distance.
Oh, and did I mention that all three of these other cities have smart cards that are re-loadable online and give you a discount. No more digging for correct change.
Basically, there are a lot of options for Metro to balance their budget. New taxes isn’t the only answer. It’s just the easiest one.
A land tax is the only pro-urbanism tax scheme I know of. Basically you just tax property and exempt buildings. It creates an incentive to use land efficiently…or sell to someone who will. If combined with form based codes and exemptions as appropriate for the poor and elderly it makes the most progressive sense. Sure as hell makes more sense than taxing the poor through a sales tax (the poor spend the highest % of their income on basic goods) or taxing progress through normal property taxes (penalizing people for building beautiful buildings), or even taxing income (though I do think a highly progressive income tax with few exemptions and a stiff capital gains tax are the next best tax systems).
The fairtax is a joke. Any economist worth his weight will know that the economic distortions a single tax on sales will cause is massive and risky.
I recommend you read Adam Smith and David Ricardo on taxes. Go to the heart of the issue and forget the bs so often confused for wisdom on internet forms or right-wing talk shows. Smith and Ricardo give clear guidelines on what constitutes the “least-bad” tax structure. I won’t bore you with links. A quick google search will give you plenty to read.
The question of increased reliance on sales tax is an important one, with lots of implications. It drives local governments to compete for retail developments by using various tax incentives like TIF. It results in a dislocation between where taxes are paid and public services are consumed. It results in decisions that are often contrary to sound economic growth. And it results in a variety of unintended consequences. For example, Metro loses about $8 million a year to TIFs, primarily in St. Louis County. Perhaps with that additional revenue, the sales tax on the ballot wouldn’t be necessary, or perhaps our transit system could be more robust. In any case, the issue of local tax policy is a very important topic that should get more attention. A couple of years ago, a pretty distinguished policy panel produced a report on regional fiscal reform for East-West Gateway, FOCUS St. Louis and RCGA. Their findings are quite revealing. You can find the report at http://www.ewgateway.org/pdffiles/library/fiscalreform/metforum-fiscalreform-07.pdf.
Finally, I question your assertion that “We can’t take away people’s pension, this is an obligation we have to them.†If private industry can and is (http://www.gm.com/corporate/employees/retirees/pdf/Retiree+Letter.pdf), why should public sector employees be treated any differently?
There is a big difference between changing the quality of one’s benefits versus taking away a benefit that has legal ramifications. Pension plans are regulated, one can not just wipe them away. Once started, they continue. Health care is not required. Big difference.
It costs money to live in this country. Yes, some taxes have gotten out of hand..tax this, tax that. But some of our taxes also support those areas that can’t do it alone (for instance state tax helps not only St. Louis, but also Pilot Knob).
But all taxes should undergo periodic review.
My taxes
I have lived in the city all of my life. I bought my property when there was not a bank in this city that would lend the money. Here’s my gripe. While buildings around me are renovated by speculators who get tax incentives and sold to people who get tax abatements….I get greatly increased taxes….and I’m damn mad about it. I want to know if the city is going to be as quick to reduce the tax value of my home as they were to raise it.
You could bring this discussion into regionalism just as the former mayor did. However, state laws can dictate cap on local sales and payroll taxes as well as dealing with TIF’s, TDD’s, etc. Once again, St Louis puts itself in a bad situation.