LJWorld.com weblogs Notes from John
7.3% divided by 2
Yes that is the sales tax rate in Lawrence and it can be cut in half. No tax protest required. We don't need to cut spending. We don't need to toss out the city commission, county commission or the legislature. We need to reconsider what is not subject to the sales tax.In Kansas the sales tax was instituted in 1937. Since then the legislature has been busy letting selected sales off the hook. There are now more than 73 exclusions or exemptions. That number is from John Wong's 2006 study and does not include the last 3 legislative sessions (Sales Tax Erosion in Kansas, http://www.ksrevenue.org/pdf/sales_tax_erosion_ks.pdf). Each time the legislature changes the sales tax a new paragraph is added to KSA 79-3603. That is the Kansas Retailers' Sales Tax law. Take a look at http://www.kslegislature.org/legsrv-statutes/getStatuteInfo.do. Reading it makes my head spin. Each exclusion, exemption, addition or whatever is given a letter starting with a. The latest paragraph is 'aaaa.' That means we are starting on our fourth run through the alphabet. This must be one of the legislature's favorite activities. I wonder what was changed this year.Fortunately John Wong's study is more understandable and necessarily simplified. The three largest non sales tax categories are: ¢ Exclusion of component parts and items consumed in production resulting in a 2005 tax loss of $2.3 billion.¢ Exclusion of government and nonprofit purchases resulting in a 2005 tax loss of $300 million.¢ Exemption of services resulting in a 2005 tax loss of $1.9 billion.Actual sales tax receipts in 2005 according to Wong were $1.9 billion. We could easily get that amount of money with a tax rate of 3.65% (half of 7.3%) by rethinking the exclusions and exemptions.I know there are 'good' reasons for each and every sale not subject to the sales tax. Exclusion of component parts and items consumed in production helps Kansas businesses. We all need jobs.Why would we ask government entities to pay sales tax when they would just need to raise other taxes or reduce services to pay for it?Why not help out nonprofit organizations with a sales tax exemption? They would just need to raise more money without the exemption. Except, not all nonprofits are exempt from sales taxes. Take a look at the list at http://www.ksrevenue.org/pecentitylearnmore.htm. If your favorite nonprofit is not listed it is apparently because you haven't asked your local legislator to submit a bill to add that organization to the list. Incidentally, Victory in the Valley is paragraph 'aaaa' the latest addition prior to this legislative session.The trouble with all of these 'reasonable' exemptions and exclusions is that the sales tax base just keeps getting smaller requiring a higher tax rate to generate the same amount of revenue. When we go to the grocery store we pay 7.3% rather than 3.65%. So low and middle income families have a more difficult time and pay more of their income in sales taxes than other families. We need to broaden, not narrow the sales tax base. ¢ Why not tax some services. Our economy is based more and more on services rather than manufacturing products. In 2005 consumption of services was 59% of all personal consumption expenditures a radical change from 1937 (Wong, 2006). ¢ Let's rethink some of our current exemptions. Examine each exemption with the thought that eliminating it would not increase revenue but reduce the tax rate. At a minimum we could require the legislature to replace each new $1 of sales exempted from sales tax by adding some other item.¢ Or we could be really radical and do away with the sales tax and raise that revenue through a more progressive state income tax.