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Tuesday, December 27, 2005

The Unintended Consequences of Taxation

For those of you who still think we can tax our way into prosperity (ahem, Roanoke Times editorial staff), the New York Times has an illuminating story this morning regarding the fires you ignite in your attempts to put out fires:

High Tax on Food in Tennessee Sends Shoppers to Other States
By The Associated Press

CHATTANOOGA, Tenn., Dec. 26 (AP) - When Julie Abel goes grocery shopping each week, she drives more than 25 miles to Georgia to avoid paying the nation's highest average tax on food: 8.4 percent in Tennessee.

A recent report ... shows Tennessee leads the nation with the highest average sales tax on food, 8.4 percent, and a 9.4 percent sales tax. (link)

I read a similar story a few months ago about folks over in West Virginia driving to Virginia and Kentucky to avoid exorbitant gasoline taxes in their home state. And don't get me started on the high cost of liquor in the state-controlled booze-and-beer stores here in the Old Dominion.*

There is a lesson to be learned here. People - and businesses - will travel to those areas where the costs of living - and the cost of doing business - are lower. For Julie Abel, the need to save money when she's shopping for food prompts her to drive out of state. For our area furniture plants, it means shipping jobs to China.

Of course, not everyone learns this lesson readily:
Some say a state income tax may help ease the burden of the tax on food, which accounted for $443.1 million, or 4.6 percent of all state taxes collected by the state, in the 2005 fiscal year.
Rather than ease the tax burden, shift to a different tax. Brilliant.

* Someone needs to fill me in on the bizarre state liquor store system (ABC) here in Virginia. It's as if I fell asleep and woke up to find the Soviets had finally invaded and took over the local packaged hootch business.