Document Type
Working Paper
Publication Date
1-26-2009
Language
en-US
Abstract
This proposal takes a long view to revenue reform. It seeks to fundamentally align the sales tax with the digital foundation of the 21st Century economy.
The core policy question is whether California is willing to change the way it defines sales tax exemptions; is it willing to move from product-centric to person-centric exemptions. Certified tax determination systems can be relied upon. A key element in this proposal is the encryption of exemption certificates in IDs (smart cards with biometric identifiers that will allow the poor or handicapped to make certain purchases tax free).
This proposal suggests that (for example) instead of exempting all bread purchased for human consumption, California should exempt only bread purchased for human consumption by the poor, the disabled or other groups or classes of people that it deems entitled to an exemption because of their economic status. Bread purchased for human consumption by the general population would be taxed. The result is to expand the tax base.
This is not an unheard of approach to structuring sales tax exemptions. Most of the exemptions in the Japanese Consumption Tax work this way; and South Carolina takes this approach to exemptions with its senior citizens.
It is characteristic of sales tax systems designed in the 1930's to strive for "rough justice" in this area. In the 1930's we could not easily distinguish among taxpayers - we could not quickly and accurately sort the entitled from the un-entitled. As a result, the California decision was to benefit everyone. It did not need to be this way. Ten states approached the same problem and took a different road to "rough justice" - they tax all purchases of food for human consumption. In the 21st Century economy California can do better.
If California decided to redefine the exemption for food and instead of granting a universal exemption to anyone who purchased food for human consumption, it determined that this exemption would only be available to that portion of the population living at or below the poverty level then an additional $5.748 billion would be collected.
Recommended Citation
Richard T. Ainsworth,
California Biometrics: A Second Proposal for California's Commission on the 21st Century Economy
(2009).
Available at:
https://scholarship.law.bu.edu/faculty_scholarship/1484
Included in
Accounting Law Commons, Banking and Finance Law Commons, Business Organizations Law Commons, Law and Economics Commons, Science and Technology Law Commons, Taxation-State and Local Commons, Tax Law Commons
