As the sales tax increases, so do sales tax exemptions. Exemptions? Yes, exemptions from sales tax or portions thereof are lobbied for by special interests so their special interest, the particular constituency thereof, are exempt. (1)
In the case of the one-fourth cent Guilford County tax increase proposal, the special interest spurring such increase, being predominately the education establishment and associated politico enablers, then cause a special interest domino effect, in that, other special interests and their politico enablers lobby for an exemption to such increase. More insidious, the sponsoring special interest and politico enablers many times incorporate into their sales tax increase proposal an exemption for other particular special interests and their associated politico enablers as a political constituency building exercise to increase the support for such a tax increase proposal on all the remaining non-exempt.
When a special interest desires a focused benefit at others expense, say through a sales tax increase, many times the special interest puts forward a revenue figure that such tax increase will generate. In many cases such increase revenue estimates are wildly off the mark and little or no increased revenue is generated, How so? First one must discount the political revenue estimate due to the exemption effect. Next comes legal tax avoidance by making larger dollar purchases e.g. large appliances, building supplies, etc. outside the political taxing authority's taxing area (purchase in a neighboring area with lower taxes). Also, tax increases inevitably increase the size and scope of the subterranean economy aka black market where items are bought/sold free of any sales tax.
Another effect causing sales tax revenue to be less than politically estimated is related to the seen and unseen. The unseen being transactions that never occur due to the increased tax and hence never become a taxable event. For example, the one-fourth cent tax increase proposal is politically/purposely sold as such a small incremental increase that no one will even notice/be affected. Yet an incremental increase applied to disposable income over time can add up to a substantial sum. Say Jane Goodfellow has $30,000 of disposable income to expend in a one year cycle within Guilford County. With an addition one-fourth cent tax increase Jane is faced with an additional tax of $75 [$30,000 x ¼ cent]. Hence Jane can not engage in transactions of $30,000 of disposable income as her disposable income is now <$30,000. Now multiple this effect by 100,000 Jane(s) and the incremental, once aggregated, becomes a very large number of transactions that never occurred and hence un-taxable.
The reduced transactions, those transactions that never occur, the unseen, then lead to an employment effect. The aggregated reduced transactions mean a faceless, nameless series of individuals were not needed to facilitate the reduced transactions. These faceless, nameless individuals either lost employment or never gained employment. However, when it comes to special interests and their politico enablers, the faceless and nameless are never given a second thought as the collective self-interest of the special interest and their politico enablers is paramount.
(1) Sales Taxes and Exemptions, Stratmann, Reese, and Rachmat, Mercatus Center, George Mason University, 08/2014.
http://mercatus.org/sites/default/files/Stratmann-Militaru-Reese-State-Sales-Tax-MOP.pdf
“Community interest groups and businesses have donated more than $100,000 to a committee campaigning for a quarter-cent increase in the local sales tax rate.”
“The donations, as well as other endorsements, “signal that our business community knows how critically important public education is to economic development, how important it is to attracting jobs to Guilford County, and how important it is that we maintain a top-notch school system,” said Anita Bachmann, the committee’s campaign coordinator.” - Tax campaign draws $100,000, Greensboro News and Record, 10/29/2014
James and Jane Goodfellow, when interviewed about “government“, will on balance, tell the interviewer that government rips them off and politicians/bureaucrats are corrupt. One might say that the answer repeated over and over by James and Jane Goodfellow(s) is: The wisdom of crowds.
A problem arises, in that, the many and various James and Jane Goodfellow(s), the common sense observation that government rips them off and politicians/bureaucrats are corrupt, can’t quite articulate the “why”. Stated another way, common sense will get you through the day but common sense does not explain “why”.
One might want to consider a specific building block on the way to answering ”why”. One building block is that of special interest groups.
One can certainly paint special interest groups as “community interest groups” or “businesses” but the zebra is the zebra regardless of the color of the stripe. It is of no matter that a particular special interest group’s mantra is education, green energy, tax loop holes, infrastructure, tax abatements, economic incentives, etc. A special interest is a special interest and as such wants focused benefits.
Those focused benefits applied to the particular special interest comes at the price of the many. That would be you. The many (you), in fact fund the focused benefit for the use, enjoyment, deployment, etc. of the focused special interest.
Many times it is difficult to answer the “why” due to political slight of hand. How so? The special interest is merely collective self-interest. The mantra of the special interest is generally cloaked in some altruistic endeavor. That the altruistic endeavor will somehow and in some way benefit all. Problem is the special interest group is made up of self-interested people (a normal human condition). The special interest group would very much like one to think that a magical moment occurs where the characters making up the special interest step out of their private self-interested life and become altruistic when functioning within their role as a special interest. Nay, Nay. Self-interest remains and is not supplanted by the supposed altruism:
“[Peter] Stillman … points out that those who see “a strong central government or a strong ruler” as a solution implicitly assume that “the ruler will be a wise and ecologically aware altruist,” even though these same theorists presume that the users of CPRs [common-pool resources] will be myopic, self-interested, and ecologically unaware hedonists.” - Governing the Commons, Elinor Ostrom, page 218
Special interest groups, the very long list thereof, who indeed gain the funding of the many (you), have a surprise in store for their own rank and file. Once funding is procured, the supposed altruistic endeavor receives the least funding, the rank and file of the focused benefit receive the next least amount of funding, while the power purveyors of the special interest gain the most. Stated alternatively, the focused benefit once procured is further focused upon the power purveyors of the special interest.
[Paraphrasing] We would all like to see government spending go down as long as it is not the government spending that affects us. We would all like to see government deficits go down as long as increased taxes fall on someone else. Most people welcome more government spending on them, few welcome more taxes. - Money Mischief: Episodes in Monetary History - Milton Friedman
