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Friday, May 6, 2011

Democrats tax plan even worse

While the Democrats tax plan clearly demonstrates their attempt to increase state spending and not make any budget cuts (so much for the compromise they've been talking about), they plan on paying for it with severe tax hikes - the largest in state history in fact. The Democrats want a $7 billion budget - more than our 2007-09 bubble budget. In fact, their plan is $600 million more than we're spending now, and over $900 million more than Sandoval's budget.

Their plan:

  • Prevent sun-setting taxes from ending.
  • New service sales tax
  • Margins tax

A service sales tax isn't so bad if coupled with a decrease in the overall sales tax rate, but Democrats only want to bring that down 1 point. That isn't enough.

Worse still Democrats want a gross receipts tax, only they've named it a "Margins Tax" and it technically isn't a gross receipts tax at all. It is worse.

A gross receipts tax is a tax on all revenue a business collects regardless of whether the business makes a profit. In this way it is far more stable than a traditional profits tax but it is very destructive toward businesses operating on the margin.

Democrats want a 1 percent gross receipts tax with a $1 million exemption and 1 deduction for either payroll or the cost of goods. In other words, they've just increased instability into the gross reciepts tax eliminating its one and only real advantage producing tax stability. It is still a destructive tax for any business operating on the margins as it still takes business income regardless of whether the business is profitable.

Worst of all, once passed it will be much easier to eliminate those exemptions and convert it to a more destructive gross receipts tax.

The Democrats tax plan confirms many of my suspicions, most notably they don't really care about tax stability, they just want more.

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