Given that I generally telegraph my feelings in my posts well in advance, the “my ballot” post from yesterday had few surprises for most. But a few commenters posted (or emailed, or called..) as to why I could oppose an elimination of a tax on businesses.
As a conservative, we generally view eliminating a class of tax as a good thing.
As an economist (by training, anyway), I understand that businesses don’t pay taxes, consumers do.
Yet, I’m opposed to this referendum. Thus, a lot of “WTF?”.
I was able to resolve one of my issues with this legislation yesterday after confirming this only eliminates the state portion of the tax. My primary concern was that this was yet another attempt by the general assembly to claim they cut taxes when the revenues would have otherwise gone to local governments. I.e., axe the tag tax; i.e., Great Tax.
I did learn in my research, however, that there was a bill last session, sponsored by Jay Powell and Ed Lindsey, and others, that would have allowed local governments to eliminate these taxes at the local level for economic development. So long as local control is preserved, I’m all for it. Unfortunately, Governor Perdue vetoed the bill, but I am assured by Rep. Lindsey that they will reintroduce this bill this session, and I will strongly support it’s passage.
So, back to my now more relecutant opposition to this referendum, I’ll refer back to one of the better classes/teachers I had in Econ. We learned at some point the priciples of fair taxation (not in any way to be confused with the FairTax!) that a tax, to provide the least distortion to an economy while raising revenue, should be as broad based and low as possible, with the fewest exemptions.
Yet, the modus operandi of the General Assembly the last few years seems to be to systematically create a lottery to see who wins tax breaks. As Republicans, we seem to enthusiastically go along, claiming that any tax cut is a good tax cut. Yet, inventory taxes are the least likely to spur economic development in most cases. In a Just-In-Time inventory world, inventories are located closest to the customers. Only a few cases at the margin will companies move inventory to avoid taxation. Thus, this is a broad based tax that a cut is not likely to spur additional economic growth to offset the lost revenue.
As such, I favor waiting on this tax cut until the commission currently studying a comprehensive statewide tax reform can release it’s findings. Rather than the patchwork of incompatible tax cuts we’ve crafted over the past decade, I prefer a targeted, comprehensive approach.
If eliminating business inventory taxes is the solution, I can wait a year for it to be part of a comprehensive solution.