How Do People Respond to Sales Tax Increases?
As we all know, there are two certainties in life; death and taxes. While we all take taxes very seriously and look for ways to minimize our personal tax burden, sales tax rates are often under scrutiny for possible increases. Unfortunately, no one likes paying more for their purchases, and very few people are supportive of sales tax increases. In this article, we’re going to look at how people respond to sales tax increases and why this is.
Understanding Who Is Affected By Sales Tax
It’s important to recognize who is affected by a sales tax increase, as not everyone will be impacted in the same way. In most cases, any increase in the sales tax rate will be imposed throughout an entire region, state or country. This means everyone residing in the area has to pay the increased rate.
The Purchasing Power Impact
When it comes to sales tax increases, one of the real issues is that they directly reduce buying power. When spending stays the same, but the rate goes up, this leads to less bang for your buck. Most people don’t have the ability to adjust their budgets accordingly. And if businesses raise the prices of their goods and services, this further takes money out of people’s pockets.
Sales Tax and Cost of Living
For many people, the cost of living is already a financial strain. As prices continue to rise or values of currencies decrease, sales tax increases can stack on additional financial pressure.
Social and Political Response to Sales Tax Increases
Whenever sales tax increases occur or are expected, there is usually a strong social and political response. People feel like their government should be doing more to keep their costs down, and the idea of a sales tax increase is often seen as the exact opposite.
Economic Benefits of Sales Tax Increases
With that being said, sales taxes do have other benefits. The revenue generated by sales tax increases are typically earmarked for specific areas, such as healthcare, security, education and infrastructure.
Common Arguments Against Sales Tax Increases
Below are some of the most common arguments people use to criticize sales taxes and their proposed increases:
• Taxes should focus on consumption instead of income – People are more concerned about the amount of money they need to spend to live, rather than worrying about how much they make. This means they would prefer taxes focus on consumption rather than income.
• Sales taxes disproportionately affect lower-income households – Sales taxes affect everyone in the same manner, which means lower-income households often take a bigger hit as they are unable to adjust their spending in reaction to the new rate.
• Tax breaks can be inefficient and lead to waste – Many governments use tax breaks as incentives for individuals and businesses, but this often leads to inefficient use of funds or even fraud.
• Local governments can be less transparent about how taxes are used – Many local governments lack transparency when it comes to how their sales tax revenues are used, or what projects their taxes are being used for.
How to Deal with Sales Tax Increases
Nobody wants to pay more sales tax, but if you find yourself living in an area where the rate has been increased, there are a few things you can do to mitigate your losses:
• Buy locally produced goods – Local goods often have a lower sales tax rate as they are staying within the same region.
• Buy basic necessity items in bulk – This can help you save money overall as the sales tax rate doesn’t increase for larger purchases.
• Don’t give into impulse shopping – Impulse shopping can lead to costly purchases that may not be necessary, and with a higher sales tax, you could be losing more than you think.
• Consider shopping online – While this isn’t an option for everyone, purchasing items online may work out cheaper due to their lower sales tax rates.
Sales tax increases are never pleasant and are met with resistance from the public. Unfortunately, taxes must be paid and, in the case of sales tax increases, many people are unable to adjust their budgets. It’s important to look at both sides of the argument and consider how tax revenues are being put to use. In the meantime, it’s wise to shop locally, buy in bulk and avoid impulse purchases whenever possible.