Thursday, January 10, 2013

Wonderful Political Babble

Provided by Bobby Jindal, Louisiana Governor and one of the Republican hopes for one-day-president of this country.   Jindal has proposed scrapping Louisiana's income and corporate taxes and replacing them with a sales tax.  The change is supposed to be revenue neutral, meaning that the state government should get the same amount of money under either system.

Jindal explains his proposal like this:

"The bottom line is that for too long, Louisiana's workers and small businesses have suffered from having a state tax structure that is too complex and that holds back economic prosperity," Jindal said in a statement released by his office. "It's time to change that so people can keep more of their own money and foster an environment where businesses want to invest and create good-paying jobs."
That is precious!  Note that verb "to suffer" and then note that it actually refers to the complexities of the tax system!  That's what holds back economic prosperity!  By scrapping the income and corporate taxes, somehow "people" (still Louisiana workers, too?) can then keep more of their own money.

But but but.  There will be a sales tax, and if it's to be revenue-neutral it might have to be fairly large.  So people won't, after all, be able to keep their "own" money.  They just pay it out in a different tax.

The change is not meaningless.  Sales taxes are more regressive than income taxes, which means that if Louisiana actually follows Jindal's proposal, lower-income people will pay more than now and higher-income people will pay less than now.  The reasons:

1.    Wealthier people spend a small portion of their income on goods and services than poorer people. Wealth is not the same thing as income, but the two are closely related. 
2.    Income taxes typically have a minimum income level at which you do not have to pay taxes. In Canada, this exemption is for people who make around $8,000 or less. Everyone, however, is forced to pay sales taxes, no matter their income. 
3.    Most countries do not have a flat tax income rate. Instead the income tax rates are graduated - the higher your income, the higher the tax rate on that income. Sales taxes, however, stay the same no matter your income level.

Because of this regressive nature, many sales tax systems omit the tax for necessities, such as basic food and shelter.  But if Louisiana decided to do that, to avoid really hurting the poorest, then the average sales tax would have to be made even higher.