Taxes and Politics, From KNOX Radio

Just a few further thoughts, as yet completely unrefined, about the radio program today. The major discussion on the radio today was taxes. This is always an interesting topic because callers often provide multiple, and often contradictory, views of taxation. It is good that radio is not a visual medium (for many, many reasons) but the confused look on my face when listening to some of the callers would not be taken well I am sure.

There is a proposed sales tax increase for the city of Grand Forks to be dedicated to roads and water infrastructure. This largely comes about as a result of the Mayor’s State of the City address. So the question asked was whether this was the “right” way to raise revenue. The short version of my answer was, it depends.

A caller actually asked me to divorce politics from the decision process, which is fine with me, but largely irrelevant since tax decisions are fraught with political implications. If the question is something like, will sales tax generate the revenue we need better than other sources?  The answer here is probably yes. Grand Forks has a pull factor greater than one, meaning it brings in higher per capita retail sales than the state average. Think of the number of people from surrounding communities that do some share of their shopping in Grand Forks. The city also attracts an international shopping segment with visitors coming down from Winnipeg.

So you allocate tax burden beyond those who live in the community, and you pick a source that is difficult to avoid. When your other choice is property tax, remember that I do not believe we can split politics out of the decision process, this seems like the safe bet.

Except that I still believe there is inefficiency here. Let’s keep the discussion focused on water infrastructure right now. I would prefer a fee based approach to finance necessary water infrastructure. Why fees? When confronted with a fee for my water usage that I felt was too high I would look to economize on what? Right, my water usage. There is a clear and direct connection.

If we instead just add to the general level of sales tax there is a disconnect between the revenue I provide the city and the use for which the revenue is generated. The disconnect also presents us with reduced incentives for economizing on a scarce resource. If my water usage is high, and I am putting more burden on the water system and increasing the need for new water infrastructure, I do not see it because my water bill does not likely reflect that clearly. The revenue is coming from a separate area. I also do not like the idea of people economizing on food in order to justify the burden they place on water infrastructure. That just seems silly.

 

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