SALES TAX SCHEME NO MORE THAN A DISTRACTION
by Sen. Raphael J.  Musto

June 9, 2004

Despite the media reports touting it as an alternative means of tax reform, the Commonwealth Caucus’ sales-tax scheme is nothing but a red herring (herring, by the way, would be taxed.)

Hoping to scuttle the Governor’s sincere plan for tax reform, a group of obstructionists have brought forth a faux proposal to eliminate exemptions to the state sales tax.

Despite the Commonwealth Caucus’ clamoring to the contrary, the scheme is not a serious legislative proposal and has not even been introduced in the General Assembly. No real fiscal analysis has ever been produced, since it likely would show that it’s economically unfeasible.

School property taxes in Pennsylvania total about $6 billion. The scheme calls for a reduction of 2% in the 6% sales tax, which comes to about $2.6 billion. Therefore, the elimination of the exemptions would have to raise nearly $9 billion. A 4% tax on food and clothing would raise about $1.2 billion. The rest of the money would have to come from taxes on medical care, pharmaceuticals, college tuition and room and board, residential utilities, items purchased for manufacturing and farming, legal fees, computer services, purchases by charitable organizations, advertising, and other business services, funeral expenses, real estate agent fees, veterinary fees and many other products and services.

No one, least of all the legislators behind the scheme, is prepared to pay those taxes.

Because the sales tax is a fixed rate for everyone, the burden of this monumental tax increases would fall most heavily on the poor. Our tax system is already regressive enough, with poorer people paying a larger share of their income taxes than wealthier people. Renters would pay more in sales taxes and would get no corresponding property tax reduction. Even those who do see a reduction in property tax will end up paying more in federal income taxes, since property taxes are deductible but sales taxes are not.

Taxing revenue on slot machines, in contrast, is a more equitable solution. Pennsylvanians are expected to spend at least $4.7 billion on gambling trips in 2004 - $3 billion of that on gambling, mostly on slot machines. Not only is Pennsylvania missing out on the direct revenue from slot machines, but also the job creation and tax revenue from transportation, lodging, food and beverages, entertainment, retail sales and other tourism related expenditures. The opportunities are enormous.

Responding to a bogus scheme with a rational argument is a little like rolling out a bulldozer to dispose of a mirage. The real issue is not whether the sales tax scheme would work, because it’s never intended to work. It’s intended to draw energy and confidence away from the very real effort to cut property taxes through gaming revenue. Let’s not indulge it a 16^th undeserved minute of fame.

Senator Raphael J. Musto