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## The Vital Role of Sales Taxes: Analysis of their Effects on Different Communities
Sales taxes are essential to the functionality of local, state, and national governments as they provide significant funding for these government entities. Meanwhile, with elder care costs having risen 40% in three years and child care skyrocketing by a whopping 76% in 40 months, numerous families are grappling with the potential financial ruin and bankruptcy.
In terms of sales taxes, if we use a $500 computer that has its cost rise to $1000 in a region with an 8% sales tax, the tax on this computer would surge from $40 to $80, marking a 100% increase. This kind of inflation hasn’t been seen in four decades, CNN reports.
Sales taxes are fundamentally regressive, meaning they disproportionately affect vulnerable groups like the poor, women, and minority groups. Unlike progressive taxes that rise with income, sales taxes apply a fixed percentage on purchases. Thus, those earning less spend a bigger chunk of their income on taxable items, magnifying the financial burden for women and minorities especially in major cities with substantially high sales taxes.
Additionally, this burden is heavier for women and minorities who often suffer from economic disparities as a result of living and paying taxes in large inner-cities, a situation worsened by non-progressive tax policies. Tragically, sales tax collections are rising even quicker than the rate of inflation.
Several major American cities have substantial tax rates – Chicago has a 10.25% tax rate, as do Long Beach, Los Angeles and Oakland in California, while Seattle in Washington has a 9.5% tax rate. As such, the average lower-income family pays 10% taxes on essentials. If inflation in LA or New York is at 30%, that means these families have to deal with a 30% higher tax burden on goods and services.
**Effects of Rising Inflation on Families via Sales Taxes:**
– **Pressure on Revenue**: Inflation depreciates the value of money. With the rise in prices, governments can significantly boost tax receipts without taking any action. In order to increase wages for city workers, inner cities might enhance sales tax rates to generate extra revenue.
– **Local Variation**: Some large cities impose higher tax rates than others, taxing all workers regardless of whether they reside in the city.
– **Ballot Measures**: Tough ballot measures can lead to increases in local sales tax charges. For instance, Tacoma witnessed a 0.10 percentage point increase approved by voters, positioning it as the city with the highest overall rate.
– **Efforts to Evade Tax**: Past research suggested cross-border shopping surged as sales tax rates increased. However, this research is now obsolete as different states require distinct sales taxes or ad valorem taxes for online shopping.
– **Relocating to Another State:** Faced with high taxes, many are now opting to leave large cities like New York and California and abandon states with high tax rates due to the increased cost of living under socialist tax systems.
**Impact on Major Cities**
Major cities, with their high population density and significant economic activities, are particularly hit by inflation-related changes in sales taxes. While some cities manage to maintain modest local tax rates, others are pressured to adjust these rates due to increasing costs and revenue demands.
It’s crucial to note that wages haven’t kept up with the pace of inflation. For instance, cities are increasing their employee wages by only 5% whereas the costs of sales taxes on goods and services have surged by 40% or more in some cases over the past three years. For the most part, cities are quietly amassing cash.
To recap, inflation can drive sales tax adjustments, affecting major cities in different ways. Policymakers must find a balance between necessary revenue and economic growth, taking into consideration the impacts on consumers and businesses.
Ultimately, the plight of working families is further aggravated by interest rate inflation or hikes. Over the last three years, families have experienced a 30-40% increase in the cost of goods and services. Additionally, they’re needing to shell out 30-40% more in taxes on these goods and services. Concurrently, these families must pay 23-25% interest rates and APR on their credit cards to finance essential goods and services, effectively operating as a double tax on workers.
In conclusion, inflation is a form of tax on the underprivileged, with sales taxes and flat fees serving as a double tax on working American families.
_*Commissioner George Mentz, JD MBA CILS CWM®, is a top 50 Influencer & Thought Leader in: Management, PM, HR, FinTech, Wealth Management, and B2B. He serves as the CEO of the GAFM Global Academy of Finance & Management®, an EU accredited graduate body that trains and certifies professionals globally. He is an award-winning author and graduate law professor of wealth management._
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