State taxes are, I should say, not prospects for economic resurgence. If re-elected Gov. Jennifer Granholm has her way, the state will extend application of its sales tax to a number of services. Writing in the Detroit News, talk-show host Frank Beckmann argues that reliance on sales-tax hikes will only make the tax system more punitive:

In 2003, a Washington think tank called The Institute on Taxation and Economic Policy found that poorer families in Michigan pay a far higher share of their income in state and local taxes than the more affluent in the state.
Those earning less than $16,000, according to the study, used an average of 13.3 percent of their income on local taxes while the highest wage earners, those over $278,000, paid just 6.7 percent, or roughly half the rate.
Now the governor wants to increase that load while claiming that bigger government will draw more businesses and jobs to Michigan. Let’s note the first business that moves here on that basis.

Michigan is hardly alone in considering proposals to expand the scope of sales taxes to include services. This is one of the most-popular ideas for reforming state tax codes across the country — popular among politicians and wonks, I mean, not among lobbyists or the general public. In theory, of course, a retail sales tax should apply to all goods and services sold at retail, which would be a significantly larger base than the current sales-tax base (and is the starting point for national proposals popular among conservatives and libertarians to replace income taxes with national sales taxes).

There are problems, though. First of all, while expanding the sales-tax base should allow for a major cut in the tax rate, few advocates truly seek a revenue-neutral tax reform. They want more money. Even if they cut the rate in the short run, the risk would be great that a future budget problem would prompt state politicians to raise the rate back up — and they’d now get a lot more bucks per percentage point on a larger base. Dangerous stuff.

Second, state tax reformers will never be satisfied picking on the likes of barbers and auto mechanics. The big money in applying sales taxes to services would come from lawyers, doctors, financial services, and others who are among the most popular lobbies in state capitals. Don’t bet against them. My own view is that the sales tax is archaic and unsustainable in the long run because of the Internet. Don’t mend it, end it. Replace it with a properly structured, flat-rate, consumed-income tax.