Property: a lot of the assets are intangible. These include parts of the inventory; fixed assets in licenses (which are not legally "property" at all), copyrights, and frequency allocations. A lot of the assets are highly mobile, like satellites. So, to be sure, are ships and aircraft, but the ships, at least, often escape the tax net. Will there next be flags of convenience for satellites?
Finally, there is encryption. Government security agencies have made great strides in breaking codes and intercepting messages, seeking out keywords, but the code-breakers have a priority in national defense matters, and we may surmise that encryptors are constantly racing to be a step ahead, so this is to be an endless cat and mouse game of growing cost and uncertainty, with substantial loss of revenue.
6. Net result.
We must look forward to a new world in which forms of taxation must change substantially. There must be more emphasis on immobile assets. That is not a bad thing: we've been there and done that, and it was better than today. Professor Wallace Oates, Univ. of MD, writing in the Review of Economic Literature, refers his readers to his study of Pittsburgh, where he and Robert Schwab found that a shift to a more immobile tax base, land, may have caused a rise in building activity. I cite Profs. Oates and Schwab because they approached their subject in the most cautious professorial way, and their conclusions are about as soft-pedaled and timidly pedantic as is humanly possible from the data they present.
7. What would happen in California if we eliminated the sales tax, and replaced it by raising the property tax?
A. No catastrophe
1. Five states and the Province of Alberta already get along nicely with no sales tax, so it must be possible.
2. No state at all had a retail sales tax before 1929 (GA). California opened its gates in 1933 with the Riley-Stuart Act, and so did several other states. It was sold as an "emergency measure," at a rate of 2%. As late as 1977 it was 4.75%. Now it is 7.25% statewide, with many cities, counties and transportation districts adding their tolls to the total, but for most of our state's existence we got along nicely with either no sales tax, or much lower rates than today.
3. The Property Tax rate would rise to a level lower than it was before Prop. 13. California sales tax revenues are currently 1.19% of the Assessed Value (A.V.) of taxable property. [2] Add that to the current 1%, and get 2.19%, compared to 2.7% before Prop. 13 - except that the 2.7% was applied to actual value, while today's assessed valuations are far below that.
The A.V. value of land is probably about 1/3 or so of market value; buildings are closer to market. If California were to assess land values at market value, tripling the land-tax base, the revenue-neutral tax rate would be well under 2%.
B. Greater equity.
The distribution of the tax burden would shift from poor counties to richer ones. Thus, in the poor inland counties of Fresno, Tulare, Imperial, and Stanislaus, sales tax revs are about 1.5% of A.V.s. In rich coastal and suburban counties of Sta. Barbara and Marin, sales tax revenues are about .75% of A.V.s. [3] Thus, the state sales tax takes a lot more money from the poor counties than it would cost them to replace the services from local taxes; the rich counties, with the high property tax bases, are contributing less to the common pool than they are saving in property taxes.
Within counties, by extension and analogy, I am reasonably certain that a careful study will show that the burden would shift from poorer cities and districts to richer ones. Again, among individuals, I believe we would find the same. One of these days, God willing, I will find the time and money to conduct or sponsor such a study.
The relevance here of this equity question is that most states and provinces have complex and expensive systems and formulae for "power equalization," and the like, designed to shift resources from rich counties to poorer ones. One reason such programs are needed is to offset the effects of the very same state sales taxes used to finance them. There are great savings to be realized by quashing this cross-hauling of public funds.
In summary, to bring equity between interstate sellers and local "bricks-and-mortar" sellers, do not tax the former more: tax the latter less, or not at all. Make up the revenue by taxing property more, and especially land, which cannot move across state lines. The net result will be to encourage both intrastate and interstate commerce, and production in all states, which was a major objective of founding the U.S.A. in the first place. An obvious byproduct is to help overcome our current depression, lower our public deficits, and save the dollar.
Appendix I: Turgot's Legacy: our Commerce Clause
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