Hollister
– It’s that time of year again.
Millions of people are pulling out their hair as they brave
their annual tax filing alone. Accountants’ offices are piling high
with tax forms and W-2s from those who don’t want the headaches.
And advocates of tax reform are again calling on legislators to
change the current system
– a Byzantine series of levies against income – to a more
simplified version such as a national sales tax.
Hollister – It’s that time of year again.
Millions of people are pulling out their hair as they brave their annual tax filing alone. Accountants’ offices are piling high with tax forms and W-2s from those who don’t want the headaches. And advocates of tax reform are again calling on legislators to change the current system – a Byzantine series of levies against income – to a more simplified version such as a national sales tax.
Amidst a myriad of proposals to overhaul the federal income-tax system, the national sales tax proposal received special attention this month as Alan Greenspan, chairman of the Federal Reserve, touted the idea as a possible boon to the economy.
“The theme is a common one around this time of year,” said Paul Vanni, a certified public accountant. “I think they’re serious in the sense that it gives them a good standing to discuss these things. Most people would tend to favor a sales tax.”
The prospect of eliminating paper work and accountant’s fees and instead paying an over-the-counter sales tax sounded good to some locals, but they were skeptical of how the government would structure the system.
“If they wanted to look at everything we purchased at the end of the year and then tax us on it, then that’s none of their business,” said Ray Sanchez of Hollister. “But if they’re just going to raise the tax on what we buy instead of taking it out of what we earn, then that’s fine.”
Roy Vincent, who was visiting Hollister from Redding Monday night, said he’d also have to see some specifics on any consumption tax proposal before he could formulate an opinion.
“It would be pretty complicated (to have a national sales tax) because some people have more money than others. Some areas are more affluent than others. I think there would have to be some case studies on it,” Vincent said.
San Benito County Economic Development Corporation Director Al Martinez said he’d been hearing about a consumption tax for years and thought it sounded like a great idea, though he added he didn’t know the specifics of Greenspan’s current proposal.
“For me… anything to simplify the whole process, because it’s just horrible,” Martinez said. “It’s a nightmare. It consumes so much time and money and it’s just outrageous.”
Hollister CPA Thomas Harlow estimated around 80 percent of people need help with their taxes, spending billions of dollars annually.
“(The accounting business) is a waste of resources and energy, but I’m saving people from the government,” Harlow said. “You look at the (tax form) instructions and if you’re a Ph.D. in accounting, then maybe you get them. But the few that don’t need help are the derelicts who think they can do it by themselves when they can’t. What I think is really funny is Turbo Tax, which is a great tool, but it’s kind of like giving somebody a set of brain surgery tools and saying ‘Here, you’re a brain surgeon.'”
Advocates of the consumption-tax plan claim it would eliminate the billions of dollars spent annually on the income-tax system while freeing capital from redundant taxes – a boost to investment, economic growth, and jobs. Members of congress in Washington seldom voice loud opposition to such change, but do little to actually enact it.
“It’s going to be tough for a lot of congresspeople to pass a repeal of the income tax system,” Vanni predicted, “because a lot of their constituents have their tax preferences built into the current tax system. It’s a way for our current congresspeople and senators to garner votes by passing things through the tax system.”
Harlow agreed it would be unlikely a national consumption tax would work, though for different reasons.
“I think a consumption tax would be great. It would be simple, but it would be incredibly unfair,” Harlow said. “So I think it’s impossible it would ever happen, but I like the idea.”
Harlow, like some Democratic critics of Greenspan’s national sales tax proposal, said the consumption tax would sap money from the middle- and lower-classes without really affecting the wealthy.
“With the consumption tax, the lower-income people are the ones who end up paying because they spend the most (of their income). I’m one of those people who doesn’t spend much money, so I’d love it. But with taxes, if you’re going to make them fair, they’re not simple. And if you’re going to make them simple, they’re not fair,” he said.
Hollister City Manager Clint Quilter said he also had reservations about a national sales tax because it could end up being regressive instead of progressive.
“If somebody’s making $10,000 a year and paying 10 percent on the $5,000 they spend on groceries, that’s a lot more than someone who makes $200,000 paying 10 percent on the $5,000 they spend on groceries,” he said. “But I assume the argument on the other side would be that the people who make more money would spend more money on things.”
Quilter said if a national sales tax were instituted, it probably wouldn’t have much effect on the city’s finances, though the county’s budget could be another story.
“As far as how it would affect us, at first I would say minimally because we don’t receive a lot of federal dollars, and typically the federal dollars we do see we see from gas tax,” he said. “But if local agencies needed to increase a sales tax for something, there’s always the chance people would say ‘Gee, I’m already paying 20 percent sales tax; there’s no way I’m going to pay a half percent more for police or a hospital.’ So there’s the matter of how it’s perceived.”
Gilroy City Administrator Jay Baksa also doubted the viability of a switch to a national sales tax, given the reliance of California and other states on sales tax for their own budgets.
At 7.25 percent, San Benito County residents pay the lowest sales tax rates in California, though the state’s are among the highest in the country. Of the $42 billion in revenues the state collected in fiscal year 2003-2004, $35.7 billion came from sales tax, according to the state Board of Equalization.
“Because the federal government had not been in the sales tax business, that’s why all the states and local governments are in the sales tax business,” Baksa said. “The state of California is very heavily reliant on the sales tax. You add another percent to a structure in California that already is high, you’re going to put (such) states at real competitive disadvantages, unless you loosen the other taxes – property tax, income tax, things of that nature.”
“I don’t think there’s the political will to do it,” he added. “This thing is easy to say but incredibly difficult to implement.”
But Tom Wright, executive director of the nonprofit FairTax.org, disagreed.
“The inside Washington guys have said there is no political will,” Wright said. “Once they went outside the Beltway, every person … said ‘Do it now. You have the political will.’ The American public outside of the Beltway is entirely fed up and wants this done now. The problem is inside the beltway with lobbyists and special interests.”
Wright’s group has lobbied federal lawmakers for a decade to overhaul the current income-tax system and the Internal Revenue Service, which requires $10 billion annually to operate, according to Wright. He said conservative estimates place private sector spending on the tax industry at $250 billion each year.
“That’s about 3 percent of the country’s Gross Domestic Product – more than we’ve spent in Iraq – for all of us to comply with the current payroll tax,” he said. “That’s what we call sand in the gearbox of the economy.”
His group’s proposal would eliminate corporate, income, and payroll taxes, and replace them with a progressive national retail tax. The system would exempt all citizens up to the poverty level, while targeting luxury items for higher sales taxes.
“We de-tax the poor, we tax the wealthy by their lifestyle, and we more effectively tax their accumulated wealth,” Wright said. “What else could a good California liberal ask for?”
While the plan sounds good at face value, accountant Paul Vanni remained skeptical.
“A lot of things aren’t addressed through the sales tax system – mortgage interest and property taxes and education incentives,” he said. “Those things are built into the income tax code. Thus that becomes part of the motivation for people to purchase homes and set money aside for their children’s education. Those are social goals that are engineered into the current tax system and something that, from what I see, the sales tax system hasn’t addressed.”
The national sales tax proposal is one of many ideas under discussion for overhauling the income-tax system. Other major proposals include the value added tax, or VAT, which would impose taxes on goods at various stages of production; a flat tax on all income; or a combination of a sales tax and income tax – the variation endorsed by Greenspan.
“That’s why cars are so expensive in Europe,” said Harlow. “Instead of an eight percent tax they have a 100 percent tax on cars.”
