This page was last updated on June 17, 2004.

Too bad there’s no tax on bad ideas; State Rep. Frank LaGrotta (D-10); June 11, 2004.

As it turns out, I too oppose the 4% sales tax as a means to eliminate school property taxes.  That's the limit of our agreement, however.  I oppose the 4% sales tax proposal because it places evermore control in the state's hands, just as Mr. LaGrotta's proposal.  Both proposals will only make out-of-control spending on government schools even worse than it is.  In reality, we should rely more on local taxes -- and local voter approval of budgets -- for government schools, not less.  Local voters are the only people who have the self-control to get government schools under control.

In my critique I point out Mr. LaGrotta's flaws when he attacks the 4% sales tax proposal.  I do that only to show the emptiness of his criticisms so you can be on the alert when you hear or read other LaGrotta comments.  Though I pick on Mr. LaGrotta in this case, his tactics are typical of most politicians and pundits regardless of political views.  As I mentioned above, I don't support the 4% proposal for the correct reasons, not those of Mr. LaGrotta.

In his discussion, Mr. LaGrotta uses "local school property taxes" and "school taxes" synonymously.  This is a deliberate deception.  As we all know, local school property taxes are only one component of the overall taxes used to fund government schools.  In practice, Mr. LaGrotta supports higher school taxes.  To clarify what Mr. LaGrotta really means, below I replaced "school taxes" with "[local] school [property] taxes" in Mr. LaGrotta's "guest editorial."

As a side point, Mr. LaGrotta doesn't seem to realize a tax on bad ideas would reduce good ideas.  Why?  It would increase the risk for innovators.  As it turns out, good ideas tend to be preceded by bad ideas.  If you were taxed for bad ideas, you may be broke before you got the good idea.  I realize Mr. LaGrotta was probably kidding, but his suggestion provides another example of an unintended consequence of a socialist idea.

Below is a detailed critique of Mr. LaGrotta's so-called "guest editorial."

"For almost 20 years, Democrats in the state House of Representatives have been trying to reduce your [local] school [property] taxes.  We were almost successful in 1989 when, along with the late Gov. Robert P. Casey, the legislature passed the Property Tax Reduction Act."

[RWC] It may be true that Democrats have worked to cut or eliminate the local school property tax.  It is false to claim Democrats have worked to reduce taxes dedicated to government schools.  Indeed, Democrats and some Republicans in name only constantly complain our school taxes are too low.  You say you never heard Democrats say that?  That is what they mean when they say we don't spend enough on government schools.  You can't say we don't spend enough on government schools without also saying school taxes are too low.

"However, because the act required a statewide referendum, those who were afraid the Democrats would actually succeed in slashing property taxes twisted the facts and confused the voters.  The referendum was defeated and, along with it, any real chance of reducing [local] school [property] taxes."

[RWC] Translation: Mr. LaGrotta believes voters were too dumb to sort out the issues and act in their best interest.  That is why cohorts of Mr. LaGrotta, like State Rep. Mike Veon, oppose local voter approval of government school budgets.

"Until now.

"Once again, we are very close to cutting Pennsylvania’s [local] school [property] taxes, with Governor Rendell leading the way.  And, once again, there are a bunch of people trying to stop us.

"The plan is simple: all we want to do is stop about $3 billion of Pennsylvania money from leaving our state every year, and create almost 8,000 new jobs in the process, by legalizing strictly regulated slot machines at select locations throughout the state.  Every penny the state gets from the plan will go into reducing your [local] school [property] taxes."

[RWC] If you believe "every penny the state gets from the plan will go into reducing your [local] school [property] taxes," you also probably believe the General Assembly will repeal the "Johnstown flood" tax.  This is a "temporary" tax -- now 18% -- on liquor enacted in 1936 -- yes, 1936 -- allegedly to provide relief to flood victims.

"A group of folks who call themselves the Commonwealth Caucus have another idea.  They want to reduce the state sales tax from 6 to 4 percent but apply that 4 percent to everything we buy in Pennsylvania.  That’s right – all the food, clothing, over-the-counter medicines, doctor visits and attorney fees that are exempt from sales tax now, would get an extra 4 percent tacked onto their cost."

[RWC] The "group of folks who call themselves the Commonwealth Caucus" is a group of Democrat and Republican members -- mostly Republican -- of the PA House of Representatives.  Why didn't Mr. LaGrotta want you to know this?  From Mr. LaGrotta's description, you may think the Caucus was made up of a bunch of crackpots.

Mr. LaGrotta didn't mention it, but in addition to the sales tax change the Caucus proposal would also "eliminate the local 1% Earned Income Tax (EIT), the local Mercantile tax, most local amusement taxes, the other occupational taxes and all other school related "nuisance taxes."  There are also exemptions to the sales tax, like prescription drugs and hospital services.¹  I guess Mr. LaGrotta forgot about these details.

"Of course, the Commonwealth Caucus never admits that their plan doesn’t really reduce taxes for working families and senior citizens.  It just shifts more of the taxes from the really rich onto the middle class.  It’s the same stuff we see from the Bush Administration every day – the reverse-Robin Hood strategy of taking more from the poor and giving more to the rich."

[RWC] Likewise, Mr. LaGrotta never admits his proposal relies on lower-income individuals.  If you think "the really rich" make up the bulk of persons who feed their income to the "one-armed bandits," you are wrong.  Both proposals are tax shifting.

Further, I thought the objective was to reduce local government school property taxes.  However, Mr. LaGrotta seems to believe at least a prime objective is to "reduce taxes for working families and senior citizens."  On a side note, how many families are not "working families?"  Given that the overwhelming majority of families are working families, is it realistic to believe any tax shifting proposal could reduce overall government school taxes for families?

Regarding the Bush Administration accusation, perhaps Mr. LaGrotta can back it up with verifiable facts in a future "guest editorial."

"What the Commonwealth Caucus never mentions in its news releases and editorials is how unfairly consumption taxes burden low- and middle-income families.  So I’ll tell you."

[RWC] A career Democrat politician wouldn't recognize "fair" if it bit him in the rear end.  When a liberal uses the word fair, he means a program in which the government treats various groups unfairly.  Proportional taxes are only unfair in the eyes of socialists.  You might have a point if high-income earners spent only as much as low-income earners, but that is false.  With few exceptions, the more you earn, the more you spend and the more taxes you pay.  This means the more you earn, the more you subsidize low-income earners.  If proportional taxes are unfair to anyone, they become increasingly unfair as your income -- and spending -- rises.

"According to a study prepared by the Citizens for Tax Justice, a nonpartisan, nonprofit research organization dedicated to fair taxation at the federal, state, and local levels: “sales taxes are extremely regressive, because they place a larger relative burden on low and middle income families.”  In its study, Citizens for Tax Justice documented that lower-income households pay over six times as great a percentage of their incomes in sales taxes as do wealthier families, while middle-income households pay four times as great a share."

[RWC] When someone claims an organization is nonpartisan, your BS alarm should sound.  Citizens for Tax Justice is about as nonpartisan as the Republican and Democrat National Committees.  Look at the CTJ web site to see what I mean.

"Imagine two traveling salesmen, both of whom need reliable transportation.  One makes $20,000 a year, the other $300,000.  Assume the 4 percent sales tax rate on a $20,000 vehicle, which is $800.  For the first salesman, that $800 sales tax bill equals a whopping 4 percent of his total after-tax annual income, more than 16 times as much of a burden as it would be for the well-off salesman."

[RWC] I have to admit I don't understand the logic of using this example.  According to the PA Department of Revenue web site, cars are already subject to the state sales tax.  Therefore, dropping the tax rate from six to four percent would actually help both salesmen, especially the $20,000 salesman.

This example has other flaws.

• To be fair, the sales tax should be spread over the life of the car.  Assuming a five year life, the prorated annual tax on a $20,000 car would be only 0.8% of the $20,000 salesman's income.

• Who buys a car that is equal in value to his annual income?  I don't and I don't know anyone who does.  That would be financially irresponsible, especially for a person with a small income.  The one time I "splurged" I bought a car that was a little less than half my annual income.  The other three cars I purchased were all less than 1/3 of my income and I still have two of those cars, the "newer" being 17 years old.  In fact, the $20,000 salesman would not buy a $20,000 car.

• Just as the $20,000 salesman would not purchase a $20,000 car, neither would the $300,000 salesman.  He likely will buy a much more expensive car to convey the image of success to his customers.  Because he is more successful, the $300,000 salesman likely will buy a new car more frequently than the $20,000 salesman.  It is also likely the $300,000 salesman has more than one car.  All of these circumstances mean the $300,000 salesman would pay much more in sales tax for cars than the $20,000 salesman.

• Mr. LaGrotta stipulated these were "after-tax annual incomes."  Because of his low income, the $20,000 salesman paid no federal income tax and may have actually received tax credits.  On the other hand, the $300,000 salesman likely paid about $120,000 in federal income tax.  With respect to Socialist Security and Medicare taxes, the $20,000 salesman paid only $1,530 while the $300,000 salesman paid about $11,400.  On these three taxes alone, the $300,000 salesman paid nearly $140,000 more in taxes than the $20,000 salesman.  That's over 92 times as much!  Why didn't Mr. LaGrotta mention this?  Is this what Mr. LaGrotta meant above when he wrote the Bush Administration was "taking more from the poor and giving more to the rich?"

• Because he earns 15 times as much as the $20,000 salesman, I assume the $300,000 salesman sells a lot more product.  Because he sells a lot more product, the $300,000 salesman keeps a lot more workers employed than the $20,000 salesman.  In turn, those additional workers buy goods and services and pay taxes.  Therefore, in addition to direct taxes, the $300,000 salesman indirectly contributes far more in taxes than the $20,000 salesman.  Hmm, I guess Mr. LaGrotta forgot that too.

• On the flip side, the $300,000 salesman would probably see a greater property tax reduction in dollars than the $20,000 salesman because the $300,000 salesman probably lives in a more expensive house.  After all, you can't give a big dollar tax cut to someone who doesn't pay a lot of taxes.  Overall, though, the $300,000 salesman still pays far more in total taxes.

"Now, start applying that math to all the newly taxable items in the Commonwealth Caucus proposal.  High-income earners who purchase items that presently are taxable in Pennsylvania – like a Lexus or an Audi, for instance – would see their sales taxes decline from 6 percent to 4 percent on that “must-have” luxury car."

[RWC] Likewise low-income earners would see their sales taxes decline from six to four percent on their car.  Isn't that a good thing?

"However, those who struggle to buy items like diapers, toilet paper and vitamins for their families would suddenly pay an additional 4 percent on every slice of bread, piece of cheese or winter coat – and don’t forget those visits to the pediatrician and bottles of Children’s Tylenol when one of the kids has the flu.  Good for that first-time Cadillac buyer; bad for that single-mom trying to make ends meet.

"Parents with a child in college won’t have it so good either if the Commonwealth Caucus gets its way; they’ll be paying 4 percent more for those expensive college textbooks.  Unemployed workers on the job hunt would have to drain 4 percent from their savings to pay monthly utility and phone bills."

[RWC] Mr. LaGrotta did not factor in the reduction in local government school property taxes and other taxes noted above.  I suspect for some low-income families the reduced taxes would more than offset the sales tax change but for others the reverse would be true.

I'm glad to see Mr. LaGrotta is concerned about high taxes on utility bills.  On my latest bill, estimated taxes were 11.2%!  Can we expect a utility tax reduction proposal from Mr. LaGrotta?

"Here’s a great idea, let’s consider some facts:

"1) Pennsylvanians like to gamble.  Whether or not the legislature adopts gaming legislation, Pennsylvanians will continue to gamble – only they’ll keep doing it in other states, which means that the $3 billion in after-tax dollars they spend on slots every year will continue to wind up in New Jersey, West Virginia, New York, Michigan, Nevada – the list goes on.  However, if we let Pennsylvanians spend their dollars in Pennsylvania, the state will get a cut of that money and we’ll use it to reduce your [local] school [property] taxes."

[RWC] Mr. LaGrotta, what are the demographics of Pennsylvania gamblers?  Are most gamblers "rich," or are they low- and middle-income folks?  If you've seen buses or planes carrying gamblers, you know the answer.

Mr. LaGrotta fails to mention the gambling tax rate.  Gamblers would be taxed 34% on the difference between what was wagered and what was distributed as winnings, the "gross terminal revenue."  I'm sure supporters prefer to call this a tax on the casino, but the tax dollars come from the customers.

To his credit, Mr. LaGrotta doesn't provide a revenue estimate for the slots proposal.  For more information on this subject, read Gambling Toward Tax Reform -- In the Game to Win by the Pennsylvania Economy League, a self-described nonpartisan -- remember your BS alarm -- issues resource.

"2) The “4 Percent Solution” would not create any new jobs and, in fact, may cost Pennsylvania jobs in the retail and service sectors, while legalizing slot machines will create thousands of temporary construction jobs and thousands more permanent jobs, well-paying jobs in the new venues all over Pennsylvania."

[RWC] Perhaps Mr. LaGrotta can cite an objective source for these claims and provide details.  For example, how many new jobs in each category and their corresponding wages and benefits?  If he cannot provide an objective source, his claims must be considered bogus.

Regarding the claim about lost jobs, is it possible the 4% sales tax would attract business from adjoining states with higher sales taxes?  I don't know the answer, but it's a good question.  With the exception of Delaware, which has no sales tax, PA would have a lower sales tax than all adjoining states.  Currently, three adjoining states (Delaware, Maryland, New York) have a lower sales tax than PA.

"3) The expanded sales tax would do nothing to help Pennsylvania’s ailing horseracing industry, which can’t compete with the dozens of out-of-state tracks with slot machines where Pennsylvanians spend millions each year.  So, legalizing gaming in Pennsylvania will help save our horseracing industry, and that means maybe someday, one of Smarty Jones’ offspring will finish what Smarty Jones started!"

[RWC] You've sold me, Mr. LaGrotta.  We need to expand participation in what we used to consider a vice so Pennsylvania can have famous race horses.  What a reason!

At what point do we legalize prostitution?  After all, above Mr. LaGrotta says we're competing with Nevada for revenue and prostitution is legal in most of Nevada.  Perhaps we should do it now so we don't have to play catch up with closer states. <g>

"4) No matter how you slice it, the sales tax idea is a tax increase for most Pennsylvanians.  On the other hand, legalizing slot machines will mean a [local] school [property] tax cut with no additional taxes.  That’s correct; we can significantly reduce your [local] school [property] taxes without raising any other taxes, and we can do it now – before the end of the month."

[RWC] Can Mr. LaGrotta provide objective data supporting his claim that the 4% sales tax results in an overall tax increase for most Pennsylvanians?  The CTJ doesn't qualify as objective.

The income from gambling is a tax by another name, and it targets those persons who can least afford it.

"All we need is for the obstructionists to get out of our way."

[RWC] So, if you oppose expanding participation in what we consider a vice, you are an obstructionist?

1. Though the proposal indicates prescription drugs would be exempt, a May 12, 2004, "final report" indicates prescription drugs would be subject to the sales tax.  I don't know which presentation is correct.

© 2004 Robert W. Cox, all rights reserved.