I was invited to the Governor’s Conference on Tax Competitiveness and Simplification. The day began with a mood challenging issue at 8 am: coffee not allowed in the auditorium. Sessions further set the mood with quotes and quips bashing taxes and the tax code in general. Unfortunately, this mood pervaded the entire conference, which included Grover Norquist at his most painful, making a shocking and distasteful reference to the “Richard Speck method of taxation.” Really?
The arrogant economist Mr. Laffer started his lunch keynote by asking the Governor, “Don’t you have a Supermajority in the House and the Senate? Then all of this should be done, right? There is nothing to stand in your way? Grover and I will be watching you.”
So much for a bi-partisan exchange of ideas.
In terms of “tax reform” in Indiana, several themes were subtly understated. We were told to take care of spending, then restructure taxes.
Attacking the largest expense in the state budget, there was a suggestion that the K-12 budget is too high. The speaker suggested paying teachers more, but cutting the budget. We were left to wonder just how they are going to do that.
The second theme was broadening the sales tax base. Watch this phrase. It may include a proposal to decrease the 7% sales tax rate, but it is definitely a proposal to tax more things, including services like doctors, dentists, barbers, and all consumer goods, including food. Of course, every one recognized that this must be “carefully thought through” and that it will meet big resistance.
And thus emerged the third theme: People have to be instructed that the state is not taking more money, it is just taking it in a different way that is designed to create more growth. Even Norquist said that we have to instruct the people that whatever is being done is NOT a tax increase. OK, so what does this spin mean?
After years of being told that sales taxes are regressive and hit the middle and lower income families most, we wonder why this is being pushed. Their answer is that dollars unspent by the rich are “being invested” and will therefore be put back into the economy. Sound like trickle-down economics? Is there anything new here?
The answer is yes – the new thing here is that this will be roughly messaged to Indiana voters. And the message will be this: Increase sales tax on all services, eliminate deductions and credits, and reduce or eliminate corporate taxes and business personal property taxes. Perhaps this can be revenue neutral. It is certainly a revenue shift.
One of the most prescient admissions was that tax policy is all about picking winners and losers. Someone finally recognized that revenue reduced is the same as cash paid out.
Yes, tax policy is about priorities, but it is also about assumptions and determining a goal. Norquist’s political philosophy is that government spending is “stealing” money. His radical comments appeared to be for entertainment value only.
Most participants recognized that citizens expect government services and are willing to pay for them. This is our social compact. This is why civilized people choose to have government. People in my district tell me all the time that they want good roads, good schools, and safe neighborhoods through police and fire resources. Our goal is not to reduce government to a comic Halloween skeleton. The goal of simplification must not overshadow the equally important goal of fairness.
As expected, this “tax conference” was not an exchange of ideas, but a presentation of a program that I expect to be the Republican tax proposals for the next two years. They read as follows:
- Continue to cut corporate taxes;
- Extend sales tax to all services and other consumer goods;
- Eliminate all tax credits and deductions;
- Continue to cut spending, especially in K-12;
- “Free” local government from union rules like Common Construction wage;
- Curb the ability of local governments to give special credits, abatements, or TIFs.
My response: Take a hard look at what they are selling. A sales tax on an expanded range of goods and services is proposed as a simplification. But be assured, it is a clear shift to the consumer. Another simple alternative is to discuss a graduated income tax. I don’t think that idea is going to sell. After all, society’s “winners” would have to pay their share.