Let’s Eliminate the Sales Tax

As my dad and I argued last year, Colorado should eliminate the sales tax (along with the use tax) even if done in a revenue-neutral way by increasing the income tax rate.

Consider a few of the many problems with the tax:

Interstate commerce has created huge problems for collecting and administering sales and use taxes.

* Paying the sales tax over small-scale intrastate commerce is incredibly difficult. For example, I can directly sell my book, Values of Harry Potter,practically anywhere in the world, but I cannot afford the paperwork nightmare of selling it directly in Colorado. (You can still buy it on Amazon!) In my experience, many small businesses simply ignore the sales tax laws.

Paying the use tax is an absolute nightmare, and the fact that hardly anybody does it turns most Coloradans into criminals.

* Sales taxes disadvantage local stores, yet forcing out-of-state businesses to collect sales taxes would create “as many as 15,000 tax rates to administer” — a bureaucratic nightmare.

The obvious solution to all these problems is to simply eliminate the sales tax.

Thankfully, the Joint Budget Committee has placed the Colorado budgetonline starting with 2004-05. Looking at the budget for fiscal year 2011-12, we can learn what eliminating the sales tax would mean.

Page 6 of that document reveals that total “excise taxes” (sales, use, and related taxes) bring in $2,184,400,000 (let’s say $2.2 billion). Income taxes bring in $4,692,200,000 (let’s say $4.7 billion). So, very roughly, eliminating the sales tax in a revenue-neutral way would require an increase in the income tax of somewhere less than fifty percent. Of course I’d rather see net taxes decline, but I could live with a revenue-neutral shift in order to get rid of the onerous sales tax.