Be careful! The spending lobby—otherwise known as the government—is trying desperately to promote consumption taxes on services as their new revenue source. Most states that have a sales tax exclude consumer, professional or business services in their base. But that would change if the big-spenders have their way.
Proponents say that such an expansion isn’t reallya tax increase. It’s just applying the same tax consumers pay on most retail items to services that are escaping the tax. But going from zero to something is a tax increase in anyone’s definition.
Proponents have an answer—they can apply the new tax in a revenue-neutral manner by reducing the tax rate on items that are currently taxed. Everyone pays less on more goods and services.
While there is nothing inherently wrong with expanding a tax base to include all goods and services and lowering the rate, the advocates’ new-found fondness for revenue neutrality is, in fact, only a ruse designed to hide their intention to raiserevenue.
Of course, business will adjust to this kind of increase in the cost of doing business.
Any number of small businesses—the ones that would be most affected by this tax expansion—would have to adapt to the cost of the collection process. By some calculations, the cost to a business of collecting taxes from the customer and remitting them to the state cost the business up to 3.75 percent of taxes collected.
For the small business person, an increase in their costs for the services they buy to run their business of up to 10 percent and the added cost of complying with the collection of taxes from their customers of 3.75 percent of taxes collected can become unmanageable and jeopardize their very ability to continue.
While it is perfectly legitimately—indeed, necessary—to look for ways to make taxes fairer, tax equity should not become a smokescreen for a tax hike. And it will if we aren’t careful and give in to the big-spenders whose definition of tax fairness is everyone paying more taxes.