Friday, November 19, 2004

How do you pull off a bandaid?

My Republican friend Jimmy is back with another though provoking comment to this post on the Bush idea to remove the write-off for state and local taxes:

I dont know if this is a good idea or not, however, the system we have right now for tax exemption for state and local taxes is unfair. Those of us in Texas have no income tax (hooray!). It also means that we have no state tax to exempt on our federal income tax return (boo!). Except we still pay plenty of taxes to the state through our little buddy the sales tax (big boo!). We can't deduct sales tax so we are paying state taxes that are not deductible like your income tax is in Oregon (where you don't have a sales tax--yay!--or at least you didn't when I lived there 20 years ago).

Note: minor exception, somebody figured out that we were being screwed by this and made our sales tax deductible this year and next. That's nice, I'm waiting for my check for the past fifteen years I've been paying sales tax.

My response to him:

I agree that the disparity in being able to write-off state income tax but not sales tax is unfair. But I'm sure you appreciate the idea that changing the system by eliminating the state income tax write-off would be politically untenable because it WOULD amount to a tax increase.

Oregon doesn't have a sales tax. I know some people would like to switch from an income tax to a sales tax, but I personally prefer the income tax. It's just so much simpler to figure out the financial impact it has on you. Which, ironically, might be why people hate it more than sales taxes. The cost of a sales tax is harder to appreciate in the long run because you don't receive a form at the end of the year telling you, to the cent, just exactly how much money you had to hand over to the government.

I think the irony here really is delicious. While a sales tax may make you grumble every time you go to the checkout stand, that's kind of a low-level background annoyance in your life that you eventually get used to. After a while, most of us just stop grumbling and don't give it much thought. It's just a part of life.

But an income tax (or a property tax) hits us in a bigger way because we get the aforementioned piece of paper at the end of the year reminding us just how much of our sweat we had to turn over to the government. So, even if a sales tax actually ends up costing us more money, the income tax has more of a psychological impact because it appears to hit us all at once.

As I said to Jimmy, I happen to prefer the one-time hit because I want to know exactly how much I am bleeding (If you have to pull off the bandaid it is better to do it quickly). And, as is clear from this example, that piece of paper makes it easier to turn around and ask for some relief from the federal government in the form of the tax write-off.


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