Government Funding of Social Programs Without Increasing Taxes.

• Author: PRESSLY, THOMAS R.

In an era of government surpluses and tax rebates, taxpayers hold elected officials accountable for improved efficiencies in public services and development projects within existing tax bases. In turn, elected officials depend upon government financial officers for guidance in maximizing tax collections while controlling the cost of services provided to constituents. Within this scenario, financial administrators encounter frequent scrutiny while fulfilling their fiduciary responsibilities to citizen stakeholders.

Can taxpayer demands for increased educational, environmental, and other public interest initiatives be satisfied under current budgetary constraints? The answer for financial officers may be as simple as collecting pennies. This article illustrates a renewable reservoir of tax revenues that could underwrite a variety of societal goals without directly raising existing tax bases or rates. This proposal represents a strategy free from political and bookkeeping manipulations. It does not maneuver budget allocations or public expenditure appropriations. It does not depend upon increased efficiencies in administrative productivity. This fiscal plan would designate millions of sales tax dollars currently collected annually to bolster funding for social improvement projects throughout a majority of states. Specifically, the few cents allotted to merchants from state vendor sales tax discounts could become a significant source of incremental capital support for social spending and rebuilding public infrastructures.

Background

Two recent occurrences exemplify taxpayer dissatisfaction with tax increase proposals designed for social/economic development projects. In November 1997, western Pennsylvania voters overwhelmingly defeated a 0.5 percent sales tax hike for regional economic expansion. Sales tax opponents labeled the tax plan as a "stadium tax" because of the specification of a portion of the additional sales tax revenues for construction of new stadiums for privately owned Pittsburgh sports franchises. Early in 1999, Pennsylvania officials ultimately produced an alternative funding proposal to partially subsidize new stadium construction throughout the state without raising existing tax rates.

In another example, the Ohio Supreme Court ruled on March 24, 1997, that the state allocation formula for funding secondary public education was unconstitutional. The court delegated responsibility for outlining an equitable distribution method to the legislative branch. Ohio legislators ultimately approved a 1 percent sales tax increase for public education, subject to voter approval. Incremental sales tax proceeds would be split between education financing and partial reimbursement of local property tax assessments, thus shifting more educational funding burden from local entities to the state. In May 1998, 80 percent of voters rejected the sales tax referendum, and the education funding issue was sent back to the court system for resolution. Both of these events sharply demonstrate the dilemma that government officers confront when they attempt to improve public services under current fiscal conditions.

On the other hand, financial professionals often accrue considerable business goodwill from active involvement in social and civic affiliations. In addition, economic development augments demand for financial and consulting services. Therefore, accounting professionals have vested interests to suggest educational, health care, and economic development approaches that are both fiscally prudent and socially relevant. For example, taxpayers throughout the country have recently been asked to share financial responsibilities with private owners of professional sports franchises desiring new stadium facilities. Apportioning annual proceeds contributed from removal of the vendor sales tax discount in many states could have generated considerable monetary means for these stadium projects without effectively increasing consumer tax obligations.

The Vendor Sales Tax Discount

To demonstrate the methodology of the vendor sales tax discount, the Ohio Sales and Use Tax Guide states that "vendors who file timely and pay all tax due are entitled to a discount." Gross discounts in the state of Ohio amount to .75 percent of aggregate sales tax collections from customers. An Ohio retailer securing $20 of sales tax would be permitted to retain 15 cents (.75 percent x $20) upon prompt transfer of the sales tax liability to the state.

An investigation into the present management of sales tax collections revealed that 27 states grant some form of sales tax discount to vendors establishing nexus within geographic boundaries. Exhibits 1 and 2 list these states and their respective vendor sales tax discount criteria. While the vendor rebate represents a minority of miscellaneous revenue for individual transactions, the annual discount can accumulate into a significant dollar figure when viewed from a governmental perspective. In fact, vendor discounts granted throughout the country annually combine to...