What is a “fair” tax?

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Oct 17, 2007 No Comments ›› Admin

October 17, 2007

“I’m opposed to the cigarette tax. It’s not a fair tax.” The gentleman from Eleva called me early one morning. He is opposed to using a tax on cigarettes to balance the budget.

“I like the cigarette tax. I don’t smoke and I won’t have to pay anything,” Another gentleman told me during conversation.

What is a fair tax? Is the smoking tax a fair tax? Is there such a thing as a fair tax?

As budget negotiations grow even more intense, the one tax where both negotiating teams seem to have some agreement is raising the cigarette tax. The current state tax is $.77; the federal tax is $ .39. The governor’s budget proposed a $1.25 increase in state tax.

The budget negotiations have not concluded, as I write. While many other taxes have fallen off the negotiating table, the cigarette tax is still very much alive.

The average pack a day smoker already pays $676 in taxes in a year. The new tax would add an average of $575 dollars to smokers’ annual costs. Many people are calling our office and saying it is not fair to balance the budget on the backs of smokers.

The people who call are often older, on a fixed income and share that they are never likely to stop smoking. As much as the public health worker in me would like to help people quit smoking, I realize that some habits are hard to break and some people’s behavior will never change.

Fellow senators have told me, “raise the tax, these people increase the cost of health care for all of us.”

Do we really want a tax system that taxes everyone’s poor health habits? What is next, a tax on body fat or fornication?

What really makes a fair tax? And how do we go about putting together a fair tax system?

Several ideas considered by the budget negotiating team have merit. For example, local businesses, including many in Eau Claire have shared how difficult it is to compete against internet companies that do not pay sales tax. Taxing internet sales is not easy and involves rewriting our tax code and working with other states, but it can be done.

Another way to work towards a fairer tax system is to make sure that everyone pays their fair share. Too often it is larger companies with headquarters in other states that find ways to avoid state taxes. Many states have found a new way of figuring out how much these companies owe. The method, called “combined reporting”, requires companies that operate in more than one state to report all their income from both the parent company and the subsidiary.

Tax-policy people say that this is the best way to keep companies from shifting income from one state to another to avoid paying taxes.

Combined reporting is a fair way to spread the tax burden around – it is fair to families and small businesses that do not have a branch in another state.

The Senate passed “combined reporting” as part of the first version of the state budget. Unfortunately, the idea was left abandon on the negotiation room floor as senators found no support from the Assembly.

Changing the tax system is not easy. As we make changes, we need to keep the big picture in mind.  A tax system that is a low rate over a broad base means we all pay something but none of us pay too much.

Our goal should be fair taxes – taxes that do not hurt one person or one business over another. Something the cigarette tax is not.

Have ideas about taxes and the budget? Let me know. Write: State Capitol; P.O. Box 7882 Madison, WI 53707-7882 or sen.vinehout@legis.wisconsin.gov or call Madison at (877) 763-6636 (toll free).  Did you miss a column? You can view them all at  http://www.legis.state.wi.us/senate/sen31/news/

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