Unless you are a modern day Istanbul and sit at the crossroads of trade and commerce with the ability to skim margins off the goods flowing through your community, why would a city rely heavily on the sales tax? The only reason is that it is easy. Unfortunately, for building a strong town, easy is not always productive.
The sales tax does a number of destructive things to your community, the worst of which is the way it devalues residential properties, and people in general, except in their role as consumers.
For the local government financing itself with sales tax, there are mostly negative financial implications from residential and other non-retail development. A new residence simply costs money. Same with a new office building. At best, they are loss-leaders in an effort to secure more sales tax revenue, although there is no way to track return-on-investment or correlate revenues with expenses.
The sales tax fails to align the interests of a local government and its residents, putting them in tension with one another. The optimum outcome for a local government reliant on the sales tax is for residents to spend their money prolifically then, when they run out, borrow money to spend more. Then, when the household is completely broke, move out of the community and make way for someone else who will spend more. Continue reading




