Tuesday, March 1, 2011

What would a 1 percent sales tax on all goods and services do?

In Minnesota there is a 6.875 percent sales tax on some goods, many "essential" goods are exempt as well as most services. The state has not been willing to raise or change this tax over the years but with the budget forecast coming out this week, and a six billion dollar budget shortfall the prediction some sort of balance of budget cuts and tax hikes will have to happen. Some states don't have any sales tax. Delaware is one of many states which does not have any sales tax. Florida does not have any income tax. These different policies have not spared them from the economic recession. Only the states with heavy natural resources are exempt from feeling the pinch of defeat as our economy gets been in a footrace by a Galapagos Tortoise.

Main has recently expanded it's sales taxes to include services, and New York is taxing clothes with a price tag that is larger then 110 dollars. These are ideas, yes, but are they good ones? Well Main is forcasted to see a 4 percent rise in their sales tax revenue. This is in the millions of dollars and not the billions. What would happen if they expanded that to everything from doctors visits, to welders, to video rentals, and law consultations. This is not politically feasible and there is very little real life evidence to show us what might happen if we taxed everything at one percent. It could be sold as a tax reduction and it would not slaughter the economy. It is interesting to think about, and because the state relies so heavily on sales tax it could possibly take the volatility out of the current market and raise new revenue.

1 comment:

  1. If everything is taxed sales tax and also same tax rate, then it will be very regressive because poor people spend higher proportion of their income (or rich people have higher saving rate).