Editorial: Shifting state tax burdens makes sense | tax, income, sales ...

There is a trend among Republican-controlled state governments to reduce or eliminate state income taxes to stimulate business and job creation.

Governors and some legislators in Louisiana, North Carolina, Kansas and Oklahoma are considering reforms, some of which would increase sales taxes to offset lost revenue.

"Our current tax system needs to be modernized and reformed," said Nebraska Gov. Dave Heineman, who would end income tax for working Nebraskans and corporations, as well as end taxation of small business, Social Security and retirement income. "How many of you have sons and daughters, grandchildren, brothers and sisters and other family members who no longer live in Nebraska because they couldn't find a job [or the right career]?"

Mr. Heineman also would eliminate $5 billion in sales tax exemptions.

The Register long has supported states experimenting as laboratories of democracy. We will watch with interest the effects on economies and government budgets. Sadly, Democratic-controlled California, which disproportionately relies on taxing higher incomes to finance government, is moving in the opposite direction.

Proposition 30 increased California's sales tax, already among the nation's highest. It also increased the top personal income tax rate from 10.3 percent to 13.3 percent, now the nation's highest.

That gives California the nation's highest marginal rate of 51.9 percent, combining state, federal and local income taxes, payroll taxes for Social Security and Medicare and factoring in tax deductibility, according to analysis by Lynchburg College, Va.

Increasing sales taxes to off-set lost income taxes, as Louisiana Gov. Bobby Jindal proposes, isn't ideal. By 41 percent to 31 percent, likely voters are against the idea, says Rassmussen Reports.

"This [sales] tax can hurt the business tax climate," says the nonprofit Tax Foundation, "because as the sales tax rate climbs, customers make fewer purchases or seek out low-tax alternatives," resulting in lost profits, jobs and tax revenue.

Another argument is that sales taxes are regressive, falling more heavily on lower-income consumers. We sympathize. Lower-income people can pay a higher percentage of income in sales taxes than do the well-off.

But the progressive income tax rate is unfair, too. Higher-income people not only pay substantially more, they pay proportionately more. That was illustrated recently when millionaire golfer Phil Mickelson said he may leave California for a no-income tax state because, by his calculation, he faces a combined income tax burden of up to 62 percent.

The economic harm of taking nearly two-thirds of a person's earned income should be obvious, as should its unfairness. The progressive income tax also penalizes wage earners for productive work. The sales tax penalizes consumers for discretionary spending. A discriminating shopper can more easily limit sales taxes. To avoid paying more income tax, taxpayers must either earn less or adopt often-convoluted strategies.

The Republican tax-shifting movement isn't perfect, but California could learn from it.

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Source: http://www.ocregister.com/opinion/tax-408991-income-sales.html

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