Taxing Our Needs, Exempting Our Wants
By now just about everyone has heard of Mortal Kombat, the popular video game that has established new standards for blood and gore. The object of this game: Rip your opponent’s heart out. And so the debate rages about whether Mortal Kombat and its ilk are harming America’s youth.
Let’s forget all that for a second. Louis Barak has another new question. Barak, a retired schoolteacher who lives in Van Nuys, wants to know why the government isn’t collecting the 8 1/4% sales tax on Mortal Kombat. If some kid blows his allowance on Mortal Kombat, he asks, why doesn’t society get a piece of the action?
Child psychologists may think Barak is missing the point, but hear the man out. If you want to discuss warped values, Barak suggests you start with the California tax code.
What kind of society do we live in, he asks, that puts a tax on diapers, Dr. Seuss and college textbooks--but not on Mortal Kombat?
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It’s true. When it comes to sales tax, Lou Barak is just this side of obsessed. In one generation, California’s sales tax has ballooned from 4% to as high as 8 1/2%, depending on the county. Los Angeles is at 8 1/4%. His contempt for the system begins with the fact that sales tax is so regressive. The less money you make, the more it hurts.
That much is obvious. But what appalls Barak is something that people don’t generally understand--the way the loopholes compound the regressive nature of the tax.
When Barak taught government at Grant High, he discovered that his students assumed they paid tax on such luxuries as concerts, movies and trips to Universal Studios. Even now, he finds himself informing well-educated professionals that they don’t pay a dime of sales tax on the $65 orchestra seats to “Sunset Boulevard.” Nor did Jack Nicholson and the other beautiful people pay sales tax on their $500 court-side seats during the glory days at the Forum.
“Most people don’t know this,” Barak says, shaking his head. “They think it’s included in the price.”
Now consider cheaper forms of entertainment: If you want to rent one of Nicholson’s movies on video, you pay the 8 1/4% sales tax. If you buy a paperback, you pay the tax. If you want to bring “Green Eggs and Ham” home to teach your child to read, you pay the tax. College students pay tax on textbooks.
How did things get this way? Sales tax, as conceived in the agrarian economy of the 1930s, applied only to tangible goods not deemed necessities. Unprepared food, prescription medicine and shelter are not taxed. Despite these exceptions, sales tax follows us from the cradle to the grave. There is a tax on diapers, just like other clothing. And there is a tax on coffins.
The big exception to sales tax is “services.” But as Sacramento defines it, “services” describes everything from a plumber and a divorce lawyer to Julia Roberts on the big screen and Darryl Strawberry watching strike three.
The Assembly Revenue and Taxation Committee estimates that $351 million annually could be raised by extending the sales tax to entertainment and sporting events. Assemblyman Johan Klehs (D-San Leandro), chairman of the committee, says the problem is that, even though California’s economy has changed dramatically, “powerful special interests” have defeated measures that might hurt their industries. Hollywood tends to get what it wants, and so do pro sports franchises.
“It’s very, very tough to close a tax loophole,” Klehs explains. Because of Proposition 13, “it takes a majority vote in both houses in California to open up a loophole, but a two-thirds vote in both to close a loophole.”
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It’s not that Lou Barak wants to tax the $7 movie ticket or the cheap seats at Dodger Stadium. “That’s a poor man’s hobby,” he says. He just wants a system that is fair.
It may be too late for that. If California wants more prisons, the money has to come from somewhere, and extending the sales tax is a prime possibility.
My guess is that Hollywood, if it really wanted to, could cover the tax without raising ticket prices. Just think of all those $5-million-a-picture movie stars. Think of how Art Buchwald’s lawsuit over “Coming to America” exposed the industry’s creative accounting practices. Think of those superstar executives and their fabulous stock options.
Could, say, the Burbank-based Walt Disney Co. have absorbed its part of the sales tax? It would probably say no. But this is a matter of public record: Last year Disney chief Michael D. Eisner exercised $197 million in stock options. His No. 2, Frank Wells, took $60 million in options.
And they probably have damn good tax lawyers.
