Policy Memo
Topline
Governments should rely less on taxes that are narrowly targeted at specific industries or products and should favor broad-based taxes instead.
Affordability 101 · Chapter 6: Tax Reform
Plymouth Institute for Free Enterprise
Governments should rely less on taxes that are narrowly targeted at specific industries or products and should favor broad-based taxes instead.
Taxes are a necessary evil. But they should be imposed in the least destructive way possible while still allowing governments to collect the limited revenues that are needed to fund activities within government’s proper scope. Taxes are least destructive when they apply evenly across the economy and are most destructive when they are designed to pick winners and losers.
The federal government primarily relies on revenues from income taxes and payroll taxes. State and local governments rely most on property, income, and sales taxes, each of which can apply to a broad base. But some state governments impose dozens of narrow industry- or product-specific taxes that raise minimal revenue but that distort markets, raise prices, and kill jobs in the affected industries.
What About Sin Taxes? Many governments impose “sin taxes” on everything ranging from marijuana, liquor, and gambling to sugary drinks and tanning beds. States have a role in restricting things that are harmful and inconsistent with a virtuous society—prohibiting marijuana and drug use is one example. But taxes on things like sugary drinks reflect a nanny-state mentality. For truly harmful things, there is a better case for restricting them than taxing them, as taxes only reduce use by adding a different harm (a financial penalty on users).
The total tax burden is lightest with a broad tax base and low tax rates.
This memo is part of Affordability 101, Advancing American Freedom’s playbook of 101 policy solutions to make life more affordable.