Tuesday, January 30, 2007

Time To Change Debate On Taxes

Fifteen states tax food purchased in grocery stores. Tennessee tops the list with the highest tax rate at 8.35%, and some people there want to get rid of that tax and instead tax incomes. They suggest, of course, that doing so will benefit the poor.

In Kentucky, where we tax incomes but not grocery food, we should go in the exact opposite direction our neighbors to the south are contemplating for exactly the same reason.

A food tax is regressive, hitting low-income earners harder than others. But there is no ripple effect through the economy caused by consumption taxes. The ripples -- a type of multiplier effect -- hit the more vulnerable citizens harder and make upward mobility that much harder. Corporate taxes, however, get passed on through every layer of production and hit the consumer as well. If we really want to help lower-income people with tax policy, we should move away from taxing profits, incomes, and business activity. Taxing consumption only, even at rates that look pretty high at first glance, would cause less collateral damage to our economy.