What exactly is a tax shift?

The term tax shift isn’t one that’s very complex or hard to understand.  However, it is used in various forms, all with different meanings.  Some refer to a tax shift as the transfer of some or all of a tax burden from one entity to another.  For example, shifting a tax burden from state government to local government.

At its most basic level, a tax shift occurs when an exemption is put into place.  For example, as discussed in the 2012 Legislative Guide to Washington State Property Taxes, the senior citizen’s property tax exemption has the effect of, “slightly increasing the tax rate that owners of all other taxable property must pay by reducing the overall base of taxable property” (pg. 5).  In other words, one segment of taxpayers’ taxes are increased as a direct result of the exemptions afforded to others.

Of course there are many reasons to offer exemptions for people and businesses that benefit society as a whole.  Small business, seniors, and disabled populations are just a few groups that the legislature has deemed deserving of exemptions and most Washingtonians would agree that helping these vital groups benefit us all. 

However, as detailed in a previous post on the cost of exemptions in Washington State, there are 640 tax exemptions.  Of those, 452 would likely generate revenue if eliminated.  I’m not going to suggest that all of those exemptions should be repealed.  I see exemptions as playing a vital role in how our economic systems work.  Some tax exemptions stimulate growth in the economy and help small businesses survive.  Nevertheless, by leaving as many exemptions as we have in place, the tax burden is shifted to those most vulnerable in the state – mainly through the sales tax.  Certain exemptions have been on the books for decades and their relevance has certainly expired long ago.  To have a working tax system we need to be constantly looking at why our system is in place – not just do as we’ve always done.  In order to reform our tax system there needs to be thoughtful examination of our current exemptions combined with major alternatives to our reliance on the volatile sales and property taxes.  In doing so, the tax shifts currently burdening our most vulnerable populations could be minimized which will ultimately help the overall economy of the state.