Guest opinion
Sales tax makes sense
Maybe I don't know all that I should about how a Retail Sales Tax would be administered, should we have one, but Senator Jim Elliot's article in the Feb. 17th Eagle sure seems to me to be worth discussing.
Senator Elliot uses the example that two families each make the same purchases and pay $2,000 in sales tax at 4 percent. Maybe they bought a new car that year. He then says if that family was earning $20,000 they would be paying 10 percent tax. How can they spend $50,000 at retail if they earned $20,000? How could they pay 10 percent in sales tax if the fixed rate is 4 percent?
A sales tax is levied on retail purchases, not income level. An assumption is made, I presume, that people with more spendable income do in fact spend it. We see a lot of that in the Flathead Valley these days, and that is good for the valley business.
For many years I have been in favor of a sales tax, even at the Federal level. I wonder how much we could save if about 90 percent of the IRS just plain disappeared? Just think about no more form 1040s; no worries about an audit somewhere off in the future; no more keeping shoeboxes full of receipts and cancelled checks for years; no more letters from the Revenue office telling us that even though we made an honest mistake, just the same you owe us some money, now, plus penalties; no deadlines; no more quarterly estimated tax payments; there are lots of potential benefits here.
I would bet that just eliminating most of the Criminal Investigations Division of the IRS would save millions. I wonder how many people and salaries it takes at the IRS and the Revenue Department to review all the tax forms and check all the arithmetic? I can just about guarantee you that the U.S. and Montana spend a lot of money to collect your tax money.
No matter how many tax accountants you might have, no one could escape or wiggle through a tax law loophole if you have to pay your tax every time you spend a buck. Forty-six of the 50 states already do that and I don't hear about a whole lot of trouble. Most of the states with a sales tax will exempt certain commodities from the tax, such as medicine and most groceries. With the computerized check out systems that most stores have today, identifying taxable items and calculating the tax at the point of sale is done automatically.
A significant benefit to the individual is that income saved or invested is made with pre-tax dollars. The tax on that money is paid later when it is withdrawn from the account and spent. If you deposit $100 in your savings account today, you have already paid state and federal income tax on that money, so it originally was about $130 if you are a working person and earning a usual salary. If you can earn 5 percent annual interest on that $100, it will take 5 years to earn back just the taxes you already paid on that $100. These days, passbook savings accounts at the banks are paying only 2 percent or less annual interest.
The 401k and IRA type retirement accounts would not be necessary because all of your deposits or investments would be in pre-tax dollars, nor would there be a limit on deposits. Money given to church or to charity is also given with pre tax dollars.
A sales tax would " level the playing field," as they say these days for everyone in Montana. I know deep in my heart that there are lots of people living part time in Montana that only pay real estate tax on property they own. There is no way to escape property taxes. A Washington State resident, for example, can live in Montana part time, escape the 8 percent Washington Sales Tax for that time and pay no income tax in Montana. Washington is a state with no income tax. That person is income or sales tax free for the part of the year they stay in Montana. For some that is a large part of the year. Not a bad deal for that person, but is that fair Senator Elliot? Full time tax paying Montanans pick up the slack on that deal, and again we could ask if that is fair.
Tourists spend 2 billion dollars or more in Montana every year, we are told. That seems like a tremendous amount of money, but perhaps it is accurate, I don't know for sure. A 6 percent sales tax on $2 billion would mean $120,000,000 to the state treasury. And that is from one segment of the revenue picture. Visitors are usually clearly surprised that Montana has no sales tax.
However, the state income tax must be eliminated if a sales tax is created. That is the fairness that Senator Elliot talks about. Double taxation, income and sales is not fair taxation. If you put $30 worth of gas in your pickup, you are paying taxes on that gas, and the money you use to pay for the gas has already been income taxed, another double tax. If there were no income tax, then the dollars you spend with a sales tax are taxed one time at the point of sale.
Jim Johnson
Bigfork