Anchorage Daily News

The sales tax/property tax debate that led up to the May 5 Anchorage mayoral runoff election showed why we economists are often of little help in reaching decisions on matters that one would think we could attack decisively.

First, most of us are lousy communicators. Second, we tend to address the issues as if we were talking to other economists, forgetting that the public's perception of what is important is often quite different from what we "know" to be truly important. Third, as in most professions, at least a third of all those calling themselves economists are utterly incompetent to advise the general public on anything at all but do so anyway.

In the case of the property tax/sales tax debate, the facts are real simple. First, the property tax costs less to administer, once you consider the sales tax collection costs incurred by businesses. But it is not at all clear just how much less: probably a lot.

Second, the sales tax has won virtually all public opinion polls because there are no dreaded forms to fill out (other than by businesses), no checks to write at the end of the year and no threat of having to pay back taxes and penalty. But it is not real clear to economists how much this should matter.

Finally, the question of which is the more or less regressive is dead in the water because renters pay property taxes in the form of higher rents, thereby inserting an element of regressivity -- hitting lower income people harder, and because sales taxes can be designed to minimize or eliminate taxes on necessities such as food and medicine, thereby lessening regressivity.

On balance, business owners tend to favor the property tax, probably because they are not fully compensated for the administrative costs that they are forced to bear under a sales tax. On balance, individuals tend to favor the sales tax because, as I said earlier, there are no forms to fill out, no checks to write at the end of the year and no threat of back taxes.

The net result of all of this is in details that the general public usually tends to ignore because they are either garbled in presentation or because economists too often add their own personal political spin.

For that reason, the sales tax/property tax debate in Anchorage is one that the voters can probably settle just as well without economists as they can with our help, provided those are the only two options. Where economists could be of considerable help is in showing the state and municipalities that there is a third option: a centrally administered statewide consumption tax with extended revenue sharing.

A consumption tax is an income tax with deductions for savings and can be made more or less progressive as Alaskans see fit. Way back in 1977 the U.S. Treasury released "Blueprints for Basic Tax Reform." The document remains what it says it is, a blueprint. Originally intended as a guide to reform the federal income tax, it never caught on for a variety of political reasons, not the least of which was opposition in some quarters to a deduction for savings. Alaskans might want to consider its ideas if there ever comes a time when the state finds itself in need of a new statewide tax.

David M. Reaume is a Washington state-based economist who was based for many years in Juneau. His opinion column appears every fourth Sunday.

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