It didn’t take long for policymakers to return to a tax shift in order to pay for the massive tax cuts under their proposed reduction of the personal income tax and elimination of the corporate income tax. The latest Senate plan that passed on the floor on Wednesday expands the sales tax base and eliminates or caps various sales tax exemptions.
Even then, there will still be nearly $1 billion annually lost to the state when the bill is fully implemented. In the meantime, on average, taxpayers with income less than $169,000 will see their tax load increase while the top 1 percent, on average, will see a tax cut of, again on average, $11,000.
Why is the Senate tax plan a tax shift? By significantly reducing the revenue collected through the personal income tax, the Senate tax plan ends up increasing the reliance on the sales tax to pay for our public schools, health services, courts and infrastructure. Greater reliance on the sales tax means a greater impact on low- and middle-income taxpayers who spend more of their annual income on taxable goods and services than upper-income taxpayers. To help offset this increased impact, the expansion of the sales tax base should be paired with a strong Earned Income Tax Credit, which is not included in this tax plan. Read More