Well we’ve done it again, took a long term federal plan and ripped it to shreds by the States short term actions. What am I referring to you may ask? I’m referring to the recent changes in taxes throughout California and many other states across the country.
Just two days ago a series of new taxes began in California. The new taxes include things like increased sales tax, increased gas tax, increased sin taxes and others. Well what is the problem with that you may ask? The state is broke and the economy is crashing and the only solution to this entire mess is to get more money from the california tax payers. Great huh!
So what happens now? In the short term it makes sense; if everyone used to pay X dollars for an item now they pay X plus an additional 2.5% thus giving the state more money. Wow what an easy concept! However, in time this increase in tax will ultimately lead to an change in the average livestyle consumption throughout California. Thus the real equation is not what I stated previously, instead it is; if everyone used to buy X amount of items they now by X minus 2.5%.
So if you used to buy 100 widgets per month now you only buy 97.5. Wait, I thought the economy need stimulating? How can the economy be stimulated if consumers are buying less? This doesn’t make sense. The worse news is that California didn’t have the highest sales tax increase. For instance Illinois apparantly doubled their sales tax to somehwere around 15% (please comment if you know the real numbers).
The question I now have is “where does this stop?” If the government is pumping billions of dollars into the economy and then taxing billions of dollars out of the economy are we any better of? That’s not even considering the affects of deflation.
This just doesn’t make sense to me but I am not an economist, so I just hope that somewhere out there someone has considered this scenario more than I have.