Thank Goodness for Grown Ups

The Standard Examiner reports that some of the GOP leaders in the Utah State Senate aren’t very keen on Governor Huntsman’s idea of completely scrapping the sales tax on food. Changes in previous legislative sessions resulted in the state sales tax on food being reduced to 2.75 percent earlier this year. But the governor has wanted to dump the tax completely since his first term campaign.

Each of us must eat, regardless of individual economic situation. This makes taxes on basic needs such as food regressive. It is often considered helpful to the poor to reduce regressive taxes. Investopedia explains regressive tax thusly:

“A tax that takes a larger percentage from low-income people than from high-income people. A regressive tax is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder.”

The problem with the governor’s food tax cut is that the resulting loss of revenue must be compensated for somehow. I have frequently decried our state government’s spendthrift ways; although, Utah looks highly fiscally responsible compared to the likes of California. I have complained about vastly increasing the size of state government during the recent budget surplus years.

But this year our politicians are getting serious about significantly cutting the budget due to the tight economic situation. The good senators can be excused for suggesting that cutting a steady revenue stream in a time when revenues are already sharply down is not a good idea.

Governor Huntsman has proposed compensating for the food tax cut with a huge tax increase on tobacco sales. This is problematic on several fronts. The St-Ex reports Sen. Pete Knudsen (R-Brigham City) as saying that “replacing a steady tax flow with one that is declining (because of reduced smoking) is not a good idea.”

Beyond this is the fact that the revenue stream from tobacco sales will be lower than the Governor’s estimates. Politicians seeking to impose heavy sin taxes consistently underestimate the amount of cash the new taxes will generate. This is a rule that is always followed.

This is partly due to the fact that the heavy tax actually does start to accomplish what it sets out to do: reduce consumption of the products that fall under the tax. Government estimates rarely accurately account for reduced consumption rates.

An even bigger problem arises because the heavy taxes create or bolster black market trade for the products being taxed, especially if the products can be procured more cheaply in nearby jurisdictions. The governor is trying to hedge against this by encouraging neighboring states to drastically increase their tobacco taxes as well. But few are taking his suggestions.

Fort Hall, the Shoshone-Bannock reservation near Pocatello Idaho sells tobacco virtually tax free. It’s not a long drive from the Wasatch Front to stock up on cartons of cigarettes to sell to friends. For many in Utah, it’s not that far to get to a border town in a neighboring state where tobacco products will be far cheaper than in Utah. Of course, this means that the state will have to develop new black market interdiction programs. These programs will not be free. They will further reduce the net revenues from the governor’s big tobacco tax.

This helps explain why some senators aren’t very excited about the governor’s food tax cut. But the senators are even more pragmatic when they point to the basic problem behind all government spending cuts and tax cuts. The St-Ex says that both Sen. Knudsen and Sen. Lyle Hilyard (R-Logan) “said that the public continues to want services but also wants fewer and fewer taxes.”

Sen. Knudsen is quoted as saying, “There's a disconnect in the public in terms of the services they want and the fact that we have to have revenue to provide them.” As Americans, our government is of, by, and for us. Each of us should be interested in governmental fiscal responsibility. Still, it is natural consumer behavior to want to get as much as possible for the lowest price possible.

Believe it or not, some elected officials actually think that government must live within its means. How blessed we are to have some political leaders that actually understand this principle. Unfortunately, they are subverted by peers (plus politicians in other states and federal politicians) that wish to give into the public’s desire to get what they want from government without paying much for it.

Too many of our politicians and citizens act like political children. I have areas where I disagree with the state senators quoted in the Standard Examiner article, but it’s good to see that somebody is willing to play the part of the grown up.