Brian Balfour has an oped in the News & Observer that explains why it is a mistake to assume sales taxes are always “regressive.”
There is one talking point that has become the go-to objection to eliminating North Carolina’s state income taxes and replacing the revenue by expanding the sales tax: “This will shift the tax burden from the rich and onto the backs of the poor!”
But that complaint fails to comprehend the realities of income and wealth in today’s world, and provides a misleading picture of how sales and income taxes really hit people.
The debate over modernizing the state’s tax code seems likely to continue for some time. That makes this oped a must-read.
One point is that consumption is often a better measure of someone’s financial well-being than income. Take a retired couple that doesn’t have much “income,” but owns their own house, has retirement plans and other investments and other assets. Their consumption is a better measure of their economic status, so a sales tax is a fairer measure of their ability to shoulder the tax burden.
Or consider a blue-collar worker who happens to pull a lot of overtime one year. His income may be taxed at a high rate, though it’s only a temporary surge in income.
Read the oped to get the full reasoning. The “regressivity” argument will keep coming up, and you should know the whole story.