|We received an interesting query the other day about the general excise tax, decrying the fact that the 4% tax is levied on food and nonprescription drugs especially in light of the Economic Revitalization Task Force’s proposal to increase the rate from 4% to 5.35%.|
If you didn’t have to pay the tax on the majority of your purchases – in this case food – would you even care that the rate was being raised to 5.35% or for that matter to 8%?
| In a sense this reader answered his own question about why the tax is imposed on food and nonprescription drugs. One would ask whether or not the reader would have been upset about the proposal to increase the rate if food and drugs were not taxed? In fact, would the reader even have paid attention to the proposal??
Probably not. And that’s the point. In a sense, having the general excise tax apply to all purchases insures that all taxpayers pay attention to what government is doing. If you didn’t have to pay the tax on the majority of your purchases – in this case food – would you even care that the rate was being raised to 5.35% or for that matter to 8%? Would you complain that government is too big? Would you care how much in benefits public employees receive or for that matter that the sprinklers at the public park are on in the middle of the year’s worst rain storm?
This broad base application is one of the best tools for holding government accountable. In fact, it stands in contrast to some of the shell games found in other chapters of the tax law.
For example, the counties practice what is known as “split roll” where higher tax rates are imposed on nonresidential properties as opposed to residential properties – where the bulk of the voting constituency is likely to have an interest. So homeowners and to some degree renters enjoy a lesser real property tax burden, but little do they realize that the cost of county government is hidden in everything they buy at the marketor the department store.
In some counties, an even higher rate is imposed on hotel and resort properties based on the theory that since visitors stay in hotels, this is a way to make sure visitors pay for the added services they need from the county. But in the end, the cost of the added property tax burden comes out of the markup of the hotel which could have gone toward refurbishing the rooms or adding personnel.
The broad base application of the tax insures the accountability relationship between taxpayers and their elected officials…
| Another attempt of this tax shell game that almost came to pass was the Family Hope Proposal that attempted to set up a state financed program for long-term care. The idea would have imposed a “small” additional tax rate on incomes of families throughout the state much like the Social Security tax. Because those persons who would likely be in most immediate need are seniors or the elderly, many groups representing this constituency threw their full support behind the plan.
Of course, since most seniors live on retirement income which under state law is exempt from net income taxes, the proposal would not have affected them. When this little detail was noted, senior groups relented and quickly announced they would be willing to pay the newincome tax on their pension income. What they failed to recognize is that with their pension income [remaining] exempt from the regular income tax, their tax burden would not be as great as the worker’s whose income would be subject to regular income tax rates plus the proposed new tax rate.
This is a textbook example of how easy it is to advocate new government programs or spending if one doesn’t have to pay for it. Thus, if one’s only purchase was food and food was exempt from the general excise tax, would that person care how tax dollars are being spent, whether or not they are being wasted, what the size of government is, or for that matter, who was running government.
This broad base application of the tax insures the accountability relationship between taxpayers and their elected officials. Ask yourself and your neighbors if you or they would be as upset at the Task Force proposal to raise the general excise tax rate to 5.35% if you didn’t have to pay it on food and nonprescription drugs?