RALEIGH – One of the strangest experiences I’ve had in my nearly 18 years of public-policy work at the John Locke Foundation has been a recent spate of letters accusing me of not being “conservative enough” because I oppose the use of sales taxes to pay for local services.
The question of sales taxes is on the ballot this fall in 17 counties. In Mecklenburg, the issue is a proposed repeal of a half-cent sales tax originally enacted by referendum in 1998 to fund a transit system. In the other counties, commissioners are taking advantage of legislation passed by the 2007 General Assembly to allow for a quarter-cent hike in the local sales tax to pay for schools, roads, or other programs.
My correspondents have attacked me for opining in opposition to the local sales-tax hikes and in favor of getting rid of the Charlotte-Mecklenburg transit tax (the latter issue being of particular importance to me as native Mecklenburger who would prefer not to have my home county become a laughingstock and synonym for poor governance).
The attack is simply this: if I am a conservative, I ought to be in favor of raising sales taxes rather than property taxes to pay for government services. No less an authority than Charlotte Mayor Pat McCrory, with whom I’ve long been on cordial terms, said basically that in an interview with Washington Post columnist Neal Peirce. McCrory suggested that if the half-cent sales tax were repealed, Charlotte’s bus system would have to be subsidized by property taxpayers. “I’m a conservative,” he said. “I want to protect them.”
I think McCrory is mistaken on the issue, but he’s certainly no bigot. Unfortunately, many others who claim it is “conservative” to prefer sales to property taxes are less enlightened. These folks grunt that sales taxes make “them” pay for government services instead of “us” – the “them” intended to refer to minorities, the poor, and illegal immigrants. This is the lingering influence of an old tradition of Southern “conservatism” that mixed big-government populism with bigotry. Most of the conservatives I know in today’s South embrace precisely the opposite mix of values, a preference for small government coupled with modern social sensibilities.
The notion that conservatives must necessarily favor sales taxes is predicated on several errors of fact and logic.
First, many people continue to believe that only those who own real property bear the incidence of property taxation. That’s foolish. Renters pay property taxes in their rents. Shoppers pay property taxes with their purchases. Visitors pay property taxes when they shop or recreate in your town. The fact that businesses collect and transmit these revenues to the government doesn’t change the basic economics of the matter. Sales taxes don’t replace property-tax revenue. They just augment it.
Second, and related to that, it is false to suggest as some advocates do that sales taxes are more “fair” than property taxes. Because sales taxes apply only to goods, not to services, they are grossly regressive and apportion the tax burden unevenly among professions and industry sectors – retailers, their employees, and their customers end up shouldering more of the cost of local government than, say, medical professionals. Property taxes aren’t free from distorting effects, either, primarily because property owned by governments and nonprofits is exempt. But the effects are less egregious.
By any reasonable standard – taxes as a percentage of income, the breadth of taxation within the local economy, etc. – the property tax is fairer than today’s archaic, ham-handed sales tax. Poor, middle-, and upper-middle-income households bear roughly similar incidence of the property tax, because the percentage of income spent on housing doesn’t vary all that much on average (the very wealthy, with lots of money in intangible assets, are a different story). And homestead exemptions help to smooth out the income effects a bit by reducing the property-tax burden for elderly and disabled homeowners and renters without much cash income.
Third, if conservatives are trying to keep the total tax burden as low as possible, property taxes are the better bet. For one thing, they are easily deducted from federal income tax. Furthermore, property taxes, like income taxes, are hard to raise because most voters get an annual tally of how much the taxes cost them, arming them with the information they need to hold politicians accountable. No such tally is available for sales taxes paid. That’s why politicians prefer the sales tax. Come on, you self-styled “conservatives.” Use your noggins.
Finally, if you think that the only relevant question in these 17 North Carolina counties is which tax to raise, you are probably not a fiscal conservative in the first place. Most of these communities have experienced significant revenue growth in recent years, after adjusting for inflation and population, and all expend local tax dollars on low-priority projects and corporate subsidies that ought to be excised before there’s any talk of raising any tax.
I can’t say that I haven’t been entertained by my recent mound of missives. It’s not every day I get called a clueless liberal.
Hood is president of the John Locke Foundation.