Teachable Moment

by Martin Harris

One of the talking points of the public-education-in-practice revolution which was begun in the ‘60’s along with the Progressive (pun intended) abandonment of basic disciplines like penmanship and spelling, history and civics, and so on ( no need to pile on by mention of Reading and Math scores here) was the adoption of the teachable-moment concept: if you’re mid-way through a long division exercise and an unruly student shouts a four-letter word, drop the arithmetic and shift to discuss the root cause, in social injustice and inadequate school funding, for his fully-understandable heartfelt protest. Not that real teachable moments never happen: at the collegiate level, a higher-than-average percentage of drowsy sophomores might then-and-there motivate the grad-student instructor to (multiple choice) change his presentation technique, move drowsers to front seating, or institute pop quizzes. Just so when one State’s Golden Domers give serious consideration to something other States’ Golden Domers might equally consider. Case in point: North Carolina’s recent investigation of the sales-tax-on-services question.

In contrast to States of more “blue” political ideology –think Vermont near the Right Coast and California on the Left Coast) which embrace raising all captureable taxes, prefer income taxes, and really prefer upper-income taxes only, and both of which (correlation or causation?) have been experiencing substantial demographic shifts via middle-income out-migration– NC’s focus of interest has been one of revenue neutrality. A sales tax boost from 4.75% to 5.9%, for example, and an expansion to cover services as well as goods would be balanced by various income tax cuts. For reasons about which much speculative-pundit ink has already been spilled, more Left-leaning States (again, think VT and CA) prefer taxes on income, higher brackets particularly, while more Right-leaning States either reject income taxes entirely (think Florida, Nevada, and Texas) and/or prefer taxes on sales, traditionally on goods and now, perhaps, on services as well. Historically, the unnerving aspect of the income-to-sales shift has been that the jurisdiction, by never-admitted-but-expertly-executed governance design, ends up with both: think the value-added tax in Europe, which was promised to supplant income taxes but didn’t; or the road-user fuel tax in the US, which was promised to be used for infra-structure only. The promisers –how to say this graciously?—“mis-spoke”. Such history, understandably, makes present-day sales-tax advocates super-cautious. After all, if a Social Security safe-deposit lock-box which would today hold enough previously-invested and therefore grown-over-time dollars to fund its liabilities in near-perpetuity (if the funds hadn’t been withdrawn by Congress for general-fund use, that is) isn’t safe from such governance violation-of-trust, why would similar promises related to a mere in-State sales tax on services fare any better? When Social Security began in the New Deal decade, there were 35 payers-in for each taker-out, enormous reserve-building against the then-foreseen present day, when there would be only 5 payers-in, and, soon, even fewer. By now, the SS trust fund, like an annuity, was supposed to be running primarily on investment returns; it hasn’t happened because the fund trustees (Congress) long ago cashed out the capital reserves. That history explains, to some degree, why some NC sales tax advocates under Raleigh’s oxidized-copper dome are apprehensive that, once it was adopted, consumers-purchasers paying a new sales tax on services wouldn’t ever get their promised reduction or elimination of taxes on income. Built-in irony: that hazard-of-allowing-politicians-discretion question directly addresses one of the two major points for the sales tax, as opposed to an income tax, concept. It turns out, we’re now told, that the SS lock-box never legally existed, and that Congress has always had “discretion” to use the massive deposit surpluses from the early years as they might see fit. Not surprisingly, they could and did.

For a sales tax, no such governmental discretion (for collection; there would be no trust fund, fake or otherwise, for pols to exercise spending “discretion” over) would prevail as it does for income, where the IRS notoriety for different answers for the same question from different inquirers was the subject of bitter commentary long before the present scandal over “discretionary” political targeting. The sales tax, collected at point of sale, would be visible, predictable, and automatic, without purchaser form-filing or after-purchase audit. Indeed, exactly those virtues have been cited by such politics/economics writers as John Taylor, whose governance argument is simple: less discretionary judgment accorded to politicians and bureaucrats directly reflects in more freedom and prosperity for citizens. It’s in two of his “First Principles”: predictable policy framework and rule of law; the latter is well-known code for minimizing governmental-player “discretion”.

Second pro-sales-tax-expansion point is the growing importance of services in the economy as, first agriculture, and more recently, manufacturing, have shrunk in relative Gross Domestic Product importance. Services are now, substantially, a part of the rapidly-enlarging information/technology economy, ranging in sub-categories from a range of professional services to a range of engineering and financial ones. Teachable moment: it explains, perhaps, why Leftists who oppose a broad-base sales tax don’t oppose a narrow-based transactions-tax. Maybe it’s all about opportunities for targeting.