Rendell shafts the young

Okay, so the Post-Gazette is reporting that Governor Rendell is looking to bump up the state sales tax on the current range of taxable goods by 1% point, to 6%. Allegheny County and Philadelphia County will see their sales taxes move to 8% as each county has an independent 1% tax on the same list of taxable goods. So what are the policy and political implications?

The Pittsburgh Post Gazette gives us some details on what Governor Rendell wants to do with the additional revenue:

Increasing the sales tax to 7 percent statewide — and 8 percent in Allegheny and Philadelphia counties — would generate $1.4 billion in new funds.

Mr. Rendell says he would use $900 million of the additional revenue over the next two years to lower property taxes for homeowners. That would be in addition to property tax relief of up to $1 billion expected in about two years, when all 14 casinos are open.

If I am reading these paragraphs correctly, $450 million per year out of the $1.4 billion per year in additional sales tax revenue will be used to reduce property taxes. This will marginally harm me, but I think that the shifting composition of taxes will be a fundamental wash for me, plus or minus fifty dollars for the year. However when we apply basic median voter analysis, this move makes a lot more sense.

The typical homeowner is a little bit older, and a little more likely to vote than the general population. Most groups of homeowners will see a small net negative — a little more in sales tax, and and slightly less on the property taxes. However there is one group that has a signifcantly different asset-income-consumption pattern that this plan is targetting and they dominate the vote.

The retired homeowner will receive the most benefits from this plan. Most retired homeowners are on a reduced income compared to the income streams they received while they were working. However home prices, and therefore property values and taxes have increased [assume reasonable assessment practices here… I know, a big assumption]. So under this system, a larger and larger proportion of their income is going to property taxes. However retired individuals have a higher proportion of their income already going to sales tax free services and goods such as medical care. So an increase in the sales tax will have a smaller net effect on them then the general population.

This policy provides some positive benefits for the median voter while continuing the wealth and policy transfer of power from the young to the old.

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