Tax Foundation Forum: Making Sense of Profit Shifting has reached its midpoint. In this halftime report, we provide a synopsis of the first nine of the 18 interviews in the series. This two-part review summarizes the key...
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- State Lawmakers Promote Sound Tax Policy by Doing Nothing
State Lawmakers Promote Sound Tax Policy by Doing Nothing
We'd like to thank legislatures in Florida and Virginia for promoting sound tax policy by doing nothing at all.
- In June, Virginia Governor Tim Kaine (D) called a special legislative session that was intended to raise $1.1 billion in new taxes for transportation. Richmond policymakers had lots of different ideas about how to do that, most of them quite bad. Kaine and Senate Democrats each proposed a varying menu of localized and statewide increases in the general sales tax, plus higher taxes and fees on hotel rooms, car sales, car registration, and real estate transfers. Senate Democrats also wanted to raise the gasoline tax by six cents a gallon. House Republicans flirted with some locally-targeted tax increases for the areas to receive transportation benefits, but ultimately passed a plan with no new taxes.
The special session produced much partisan bickering and recrimination, but no new taxes, as the Republican House of Delegates and Democratic Senate could not come to terms on a plan. After the session crumbled on Thursday, Kaine offered what appears to have been praise for legislators:
I don't think I've ever seen a group work so hard to do nothing. It was doing nothing taken to an art... It was like a "Seinfeld" episode, the show about nothing.
We agree: Seinfeld was a great television show, and ‘nothing' was a great outcome for this special session.
- Florida legislators were quieter but no less proactive in their inactivity. Florida's (in)action took place back in May, when budget-crunched legislators declined to reauthorize the 10-day "back to school" sales tax holiday that has traditionally come each summer. With the usual time for the holiday approaching, reporters are starting to take notice, and some retailers are displeased.
Sales tax holidays look like a boon to the consumer, but as we have written previously, they make the sales tax less neutral across products and time and increase retailers' compliance costs. When Florida's coffers are flush once again, legislators should look to make broad-based reductions in the sales tax rate, rather than narrowing the tax's base with holidays.
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