The Sales Tax: Consumers Get It (Craig Douglass On Consumers)

by Craig Douglass  on Monday, Jan. 9, 2017 12:00 am  

High noon on Jan. 20, a new president will be sworn in. We curiously look forward, don’t we, to a new approach to governing, or at least a different attitude about it — different policies, personalities and pertinences. But the principles of our republican democracy remain, as do the institutions of what some call “the permanent government.”

Presidents come and go, one at a time, but the permanent government, defined as the executive agencies of the cabinet as well as the Congress and judiciary, remains. Setting aside ideological impracticalities of dismantling or dramatically changing the way our governments — federal, state and local — operate, we see every day how consumers participate in and use the permanent government to improve everyday lives.

The example we choose to demonstrate direct consumer involvement in the political process is the sales tax. Consumers pay them. Consumers understand them. Consumers vote for them. Sales taxes, their approval or rejection, could be the single most measurable example of a consumer’s political and social impact.

Arkansas is one of 38 states that employ both a statewide general sales tax as well as local sales taxes passed in cities and counties. The state sales tax, more often than not, has been levied by the state Legislature. There is one recent exception, to be noted later.

Cities and counties, however, look to their local citizen consumers to decide, through their direct votes, whether to enact, increase or decrease local sales taxes. The people decide. Those local sales taxes are charged on the purchase of goods and some services, in addition to the rate collected by the state. The current state sales tax rate is 6.5 percent (except on groceries). Local sales taxes vary widely, based on what is referred to voters by city and county governments, and what those voters choose to approve.

There is some dispute on which state led the way. We do know that in 1930, Mississippi began collecting a statewide sales and use tax. This broad-based tax aided in providing state services beginning in the Great Depression. At least 11 states had adopted a sales tax by 1933. Arkansas initiated its first state sales and use tax in 1935. By 1940, 18 more states had passed broad-based sales taxes. Today, 46 states plus the District of Columbia charge state sales taxes.

The Arkansas General Assembly has and can levy the state sales tax. And it takes a simple majority vote of both houses to pass an increase. The most recent exception to the legislative levy was in 2012, when the people of Arkansas voted to increase the state sales tax from 6 percent to 6.5 percent. The extra half-cent is temporary, expiring in 2023, and is dedicated exclusively to state highway improvement.

When referred to the people by the Legislature in 2011 for a vote in the 2012 General Election, little hope was expressed for its passage. In fact, research at the time showed that fewer than 50 percent were in favor of the temporary tax, and more than 40 percent opposed it.

That year’s campaign for the half-cent sales tax clearly communicated the benefits of economic development and private-sector job creation if the tax, exclusively dedicated to highway improvements, were passed. When it came time to vote, more than 58 percent of voting Arkansans passed the tax. But the tax expires in six years, along with the road-improvement benefits it is currently funding.

The 2012 statewide result is not unlike what cities and counties experience year in and year out: If voters know exactly what the sales tax is for — a new jail or community center or fire station, an economic development incentive for a new factory, a local road project — the likelihood local voters will support the local tax is greatly increased.

And the 2012 increase in the statewide sales tax seems not to have hindered local efforts to raise city and county sales taxes. In fact, since the state sales tax was increased by a half-cent, 24 Arkansas cities have enacted a local sales tax for the first time, 30 cities have increased their sales taxes, and 16 counties have increased an existing countywide sales tax.

Consumers get it.


Craig Douglass of Little Rock is an advertising agency owner and marketing and research consultant. He also is executive director of the Arkansas Good Roads Foundation. Email him at Craig@CraigDouglass.com.

 

 

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