What about a tax on breathing?
Some taxes are just immoral
Imagine that in some unnamed state in the United States, there is collected from the residents a tax on beathing. It’s argued that taxing the breath is most fair because everyone needs to breathe. And so, breath is taxed and everyone who buys anything in the state has to pay the breath tax which, for simplicity, is added to the total sales price of every purchase everywhere in the state.
Here’s the twist: The tax is collected and then remitted as a credit when the person files their income tax. In other words, the tax doesn’t really do anything. It doesn’t pay for a program, project, or service. It just gets collected and then remitted. One might then wonder: why does the breath tax exist?
The stated justification comes from the fact that people visit the state from elsewhere. We call these visitors “nonresidents.” It is argued that if breathing is taxed for everyone but remitted as a credit only to residents, nonresidents will pay something to the state as part of their time within its borders. And it doesn’t matter what they buy or how they interact in the economy, one way or another, they will pay the Breath Tax.
In this thought experiment, the residents of this unnamed state could rightfully be upset that the government is taxing something people need to live. It’s worse that the money isn’t being used for anything. It just sits in the state treasury until it’s time to be returned to resident taxpayers. Perhaps there is some advantage to the fact that money is being collected from nonresidents, but it comes at the loss of money to the state’s inhabitants, which also comes with a high moral cost.
Additionally, it’s neither free nor cheap to administer the Breath Tax. The private sector is forced to accurately collect the tax and remit it to the state tax collection agency. If they fail to do this, or they fail to get it right, they can get in trouble. At the tax collection agency, it costs money to hire the government employees who make sure the tax is remitted accurately and that people claiming the Breath Tax Credit are actually entitled to it. On occasion, this means auditing individuals and businesses, or demanding proof that the person claiming the credit are doing so legally, which also costs money.
This is the central beef with Idaho’s sales tax on groceries. At its peak performance, the Idaho grocery tax is supposed to roughly equal the amount of money remitted via the grocery tax credit. In other words, as with the hypothetical Breath Tax, the sales tax on groceries doesn’t pay for a single government program, project, or service. When the state of Idaho taxes people for their food purchases and then refunds the tax to Idahoans many months later via an income tax credit, it’s using the law to separate people from their money for no good reason.
A simple premise of government finance is the that government shouldn’t take from people more than is necessary to operate. This is why we frown on surpluses. If the government is running a surplus, we argue for taxes to be lowered to account for the overage, not to be spent on new projects or held in a reserve fund.
Here, the food tax money isn’t being used to do anything. It’s being held and then returned later. You might get back less than you paid. You might get back more, because all of it is washed through the terribly inefficient government machinery at the state Tax Commission. You might also be audited or forced to prove that you are indeed allowed to collect the credit.
And as with the imaginary Breath Tax, it’s been suggested that the grocery tax/grocery tax credit is a handy way of making sure out-of-state visitors pay taxes. This is the wrong way to look at this. How do we know? Because if that were a rational argument, one could also propose raising the sales tax on groceries to 12%. After all, we’re getting the money back in the form of a tax credit, eventually, right, so why not demand double the sales tax from nonresidents?
But doesn’t Idaho “deserve” a “cut” from visitors? Hotels, restaurants, grocery stores, gas stations, parks, ski resorts, etc. all benefit from visitors to the state. The state of Idaho benefits, too, by virtue of the increase in economic activity, on which the state of Idaho then collects through taxes on businesses. The state is deprived of nothing. Whether the state “deserves” this or not is another question, but quite obviously, taxes are generated on nonresidents which the state then collects from its residents and its businesses.
I’m not a fan of any tax, which includes, but is not limited to, taxes on the money we earn, on the value of our property, on our electricity, on our purchases. Some taxes are more immoral than others. The morality of a tax deserves consideration when tax policy is written, regardless of how big or small the tax being collected.
We don’t tax breath because that would be immoral. You need to breathe to live. Most states have elected to not tax food because of the immoralness of taxing something that people need in order to not starve. Idaho collects an immoral tax for no reason whatsoever, which is probably the worst combination of all.