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Broadening the Tax Base without Raising Taxes

Our friends over at the Nevada Policy Research Institute (NPRI) have come up with a revenue-neutral tax reform plan which would broaden the state’s tax base without increasing revenue to the government until the economy recovers.

The essence of the plan is to extend the existing sales tax to items not now being taxed, while reducing the sales tax rate from 6.85 percent to 3.5 percent. And as the economy recovers, more people will be buying more of both the “old” taxable items and the “new” taxable items leading to an increase in revenue going to the government without raising taxes.

There is, however, a legitimate concern about such a plan for fiscal conservatives – specifically the fact that once the number of taxable sales items expands (“broadens”), the inevitable tax hike from 3.5 percent to 3.75 percent, and then to 4.0 percent and then to 4.25 percent will raise taxes on items not currently taxed.

That said, it is important to note that support for NPRI’s revenue-neutral proposal would NOT appear to be a violation of the Taxpayer Protection Pledge – with the caveat that the devil is always in the details. Revenue-neutral tax “shifts” – in which taxes go up in one place but down in another – are not violations of the Pledge providing the shift itself, as opposed to a recovering economy, does not cause an increase in revenue going to the government.

Read more HERE