Tax Reform May Hit Localities Hard, National League of Cities Group Told: Retail Sales Plan an Issue at Conference in Philadelphia

Article excerpt

Federal tax reform could play havoc with state and local taxes, city officials gathered in Philadelphia were told yesterday.

Adapting state tax laws to conform to either a federal flat tax or national retail sales tax could be "an extraordinarily difficult task," wrote Thomas W. Bonnett in his presentation to the National League of Cities.

Yesterday's conference highlighted renewed state and local concerns about tax reform and comes shortly after many learned for the first time of a $112 billion levy proposed by a national retail sales tax plan.

National sales tax advocates say their plan's benefits outweigh the cost of the new levy on state and local governments.

"When you tax consumption, you are encouraging savings, adding to investment and promoting growth. These are public goods that benefit everyone," said an aide to sales tax author Rep. Dan Schaeffer, Colorado Republican.

Under a national retail sales tax written by Rep. Dan Schaeffer, Colorado Republican, and being championed by Rep. W.J. "Billy" Tauzin, Louisiana Republican, state and local governments would pay a 15 percent tax on purchases and wages paid to employees.

The authors want to put prices for government-provided services on par with privately provided services.

"Sounds pretty crazy to me," Montgomery County Finance Director Tim Firestine said of the proposed levy.

Half of Montgomery County's $2 billion budget goes to education and would be exempt from the sales tax. On the remaining $1 billion, most of which goes to public safety and health and human services, there would be a $150 million tax.

"That's a big chunk of our budget," Mr. Firestine said.

An aide to Mr. Tauzin said that prices governments pay would decrease, because they would no longer include the hidden costs of the current income tax.

A state tax administrator speaking on the condition of anonymity countered that there is no guarantee prices will drop low enough to make up for the additional cost and, if they do, states will still lose money on their price-based sales taxes. …