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Governor Fletcher Wants To Triple My State Income Tax – Part 2

By Theresa Fritz Camoriano

Last week, I wrote an article about the proposed sales tax on services.  I received several e-mails criticizing or disagreeing with the points that were made in the article, and I would like to respond to them here.  The comments that were made by readers are in bold, followed by my responses.

1.     There is a big difference between a sales tax and an income tax – they are not the same thing.  That is true.  An income tax is levied on receipts after expenses are subtracted, while a sales tax is levied on receipts before expenses. 

2.     Your numbers are wrong.  Again, that is true.  In an attempt to keep my example simple, I oversimplified a bit.  To be more accurate, if the charge for my services were $100, the client would receive a bill of $106, which would represent my service fee plus the sales tax on the services.  Or, if the bill to the client were $100, then $94.34 would be for my services, and $5.66 would be for the sales tax. 

3.     Why are you worried about the sales tax on your services?  That tax is paid by your client – not by you.  While, of course, my entire bill is paid by my client, the entire amount must be earned by me, including the amount called “sales tax”.  From the point of view of my client, the bill he pays to me is what it costs him to use my services.  He doesn’t care whether it is labeled “services” or “taxes” or “college tuition for Resa’s kids”.  He wants to make sure he is getting enough in services to justify what he has to pay, and I have to work to provide those services.  If my charges are increased by 6% to cover the new state sales taxes, then, from the client’s point of view, it is the same as if I had given myself a 6% raise.  It doesn’t matter to him where the money goes.  Since the taxes must be earned by me, they are an additional tax on my labor. (This is similar to the situation in which the IRS says that your employer pays half of your social security taxes.  You can be sure that you have to work to earn the full amount, including the part that is paid by the employer, because the employer considers it all to be a cost of having you as an employee.)

4.     Don’t you think it is fair to extend the sales tax to services, since it is already being charged on products? My article did not attempt to get into the issue of tax fairness.  Tripling my income taxes does not feel very fair to me, and it certainly is not revenue neutral.  Most recently, I am reading that the proposal is just to levy the service taxes on auto mechanics “and a few other services”.  Presumably, those elected officials who are proposing these taxes are trying to find victims who will have the hardest time defending themselves against the tax increases.  Is it fair to balance the budget on the backs of auto mechanics and their customers, most of whom drive older cars?  Is it fair to balance the budget on the backs of smokers, claiming that you are levying an increase in the cigarette tax because you care about their health?  Clearly, what would be most fair and least harmful to the health of the state’s economy would be for the state to stop trying to increase taxes and instead start cutting its expenses, so it will be less of a burden on its citizens.  We have gotten into this mess by spending too much, not by taxing too little, and we need to get out of it by reducing that spending.

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