If You Tax Something, You Get Less Of It
From the LA Times article "A State Sales Tax Jump Could Backfire":
California has a reputation as a high-tax state. When it comes to sales taxes, at least, it's well deserved. At 7.25%, the Golden State's statewide sales tax rate is the highest in the nation, according to a 2007 ranking. If Gov. Arnold Schwarzenegger's proposed three-year, 1.5% increase (to 8.75%) goes into effect, it would solidify our lead over our closest competition -- Mississippi, New Jersey, Rhode Island and Tennessee, which all had 7% statewide rates according to the most recent ranking by the Tax Foundation.
And that could take sales away from retailers as consumers look to neighboring states and the Internet to avoid paying taxes.
"The higher the sales tax is, the more likely people are to buy things out of state or online," said Lynn Freer, president of Spidell Publishing in Anaheim, which produces information for tax professionals. The effect could be especially noticeable in Los Angeles, where a higher state rate -- combined with the recently passed Measure R and other local levies -- would eventually push the sales tax paid within the city to 10.25%. That would be one of the highest levies of any U.S. municipality.