Transaction tax: Government at its worst

We have to scratch our heads with wonder at why Kalispell city officials are trying to press ahead with an idea as bad as the proposed transaction tax.

The list of reasons it’s a bad idea seems to go on and on, but the most prominent is the inescapable, regressive nature of applying a 9-cent tax to all retail transactions, no matter the price involved. It will have a heavy impact on lower-income people who tend to purchase items in small quantities. A kid who spends $5 in three transactions will pay 27 cents of it in tax, while an adult who is able to purchase $400 in goods in one trip to Costco or Walmart will pay just 9 cents. Ridiculous.

The impacts would be far worse than percentage-based sales taxes that have failed miserably with the public in the past, which at least reflect the actual value of purchases made. In addition to the consumer penalty, retailers would of course be enlisted as unpaid tax collectors and be subject to random audits, so our guess is that both consumers and retailers will strongly oppose the tax.

How on earth do those who advocate this tax expect it to win even marginal public support?

So far, the main selling point is that the tax would generate enough revenue to meet the city’s estimated $4.5 million in street maintenance needs, and it would allow the city to reduce street maintenance assessments on property owners that currently provide just $1.75 million, well short of the city’s needs.

The goal is to “redistribute the cost burden” of street maintenance so that property owners don’t shoulder the entire load. Well, maybe they’ll pay less in street maintenance assessments, but they’ll also be paying the transaction tax all over town.

Of course, the transaction tax proposal itself is poorly defined. What will qualify as a retail sale? Vending machine sales? Transactions at “Arts in the Park”? A purchase at the farmers’ market? Will there be exemptions for food staple items or for prescription drugs? How about purchases made with food stamps? What businesses might be exempt from the tax? Will a restaurant meal qualify as a retail transaction? And what kind of burdens and penalties might befall a business that doesn’t meet the muster of a city audit system that is sure to be costly?

These are huge questions.

If the city assumes that every transaction made by the Daily Inter Lake is a “retail” transaction, then they could jack up our taxes sky high. We do sell a lot of newspapers, after all. But if banks are exempted because they mostly provide a service, then maybe newspapers should be as well. After all, we are in the business of providing services to people — delivery of news and advertising, to be specific. But if the city disagrees, and tries to nail the newspaper for every transaction conducted in the city, they could charge us as much as $80,000 a year. That’s a ton more than the newspaper currently pays in assessments.

The same goes for plumbers. Yes, they sell and install parts when they visit a home, but they are mainly providing a service, aren’t they? Has anyone at the city even thought about these questions?

And what about the huge bureaucracy that will be needed to administer this mess? Is anyone other than government employees in favor of more government?

Of course, the expectation is that retailers responsible for collecting the tax will be doing a lot of the work, and then passing the costs along to their customers. But businesses tend to prefer setting the price of the products themselves rather than letting government do so.

By the way, we are in the middle of a recession. Does anybody think this tax will stimulate or improve business activity? Our guess is that the arbitrary and inefficient nature of the tax will distort and depress economic activity. That, in itself, should be enough to kill this idea.

The city quite clearly has no idea of how many transactions the tax would apply to in a given year, and therefore total expected revenue is entirely unpredictable. It could be far more than current expectations. But even after being applied for one year, transaction tax revenue will be unpredictable because business and consumer practices will shift in response to the tax, making revenue projections a moving target.

The questions seem as endless as the reasons we oppose this tax, no matter how it is massaged and polished for a city sales pitch. We know the city does have a serious revenue problem related to adequate street maintenance, but a transaction tax is not the answer.