So people who spend most of their money on groceries and gasoline and electricity — usually the poorest among us — effectively pay a lower sales tax, because those items aren’t taxed. So do wealthier people who spend most of their money on services — from lawn care to attorney fees — which also are untaxed. People who spend more of their money on clothing or electronics or restaurant meals or most consumer goods pay a higher effective tax rate because those items are taxed.

Now, there are perfectly legitimate reasons to write exemptions into the tax code. It can make the code more equitable: A sales tax is regressive, because poor people must spend a larger portion of their income than wealthier people, who are able to save or invest more; exempting groceries is one way to make the tax less regressive. Exemptions also can discourage those activities that we as a society want to discourage and encourage activities that we want to encourage; hence, a higher tax on cigarettes, and tax breaks for creating jobs in low-income counties.

The problem comes when the loopholes swallow the whole — as they clearly have when twice as many sales are exempted as taxed. The problem comes when the tax exemptions do not reflect generally agreed-upon values, but instead reflect the lobbying power of the favored interests. Or inertia.

Read it all.

Filed under: * Economics, Politics • Economy • Corporations/Corporate Life • Personal Finance • Taxes • Politics in General • State Government • * South Carolina

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