Every type of organization—families, businesses, nonprofits—scales back its spending and seeks greater efficiencies when revenues are down.
But government is different because it alone in our society can restore lost revenue through raising taxes.
However, raising taxes during economic decline risks further exacerbating the decline. By extracting a greater amount of money out of the private economy, government further constrains the amount of capital available for saving, investment and spending.
Today we’re seeing this play out at the federal, state and local levels. States in particular are combing through their tax bases, looking thither and yon for that hidden pearl they could begin to tax, or tax at a higher level.
Last week in Austin, IPI testified during such an exercise. The House Ways and Means Committee is reviewing the tax base. It’s an important exercise, especially if the goal is to move Texas tax policy in a more rational direction, instead of just looking for the softest political targets for increased taxes.
But “a more rational direction” should include fixing existing disparities in the tax code.
It’s self-evident that like products and services should be taxed and regulated alike. Otherwise, government policy tilts the playing field favorably toward some competitors in the marketplace, and against others.
If that’s true, it doesn’t make sense for customers of cable and IPTV video services to pay 7 percent (in Texas) or even more (in other states) of their total bill in taxes and fees, while customers of satellite video services escape those taxes and fees. The products are interchangeable and directly compete with each other in the marketplace.
But the greater disparity is the tax treatment of communications services as opposed to almost all other products and services in the economy.
Based on practices established during the former monopoly era of communications, governments have a habit of milking communications services for the revenues they seek.
- Today, Tennessee is attempting to raise already high taxes on video services.
- Other states are seeking higher taxes on wireless phones and digital downloads.
Rational state tax policy should include moving toward lower communications taxes, especially if we want to encourage video competition and the spread of broadband communications. In a slowing economy, governments should be seeking savings and greater efficiencies, rather than exacerbating the existing counterproductive disparities in their tax codes and passing their problems along to the taxpayers.