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Michigan has a structural deficit. Sooner or later, one way or another, the state gov't is going to have to increase revenues*. A lot of our money has been going to the financial sector in recent years. Maybe we could get some of it back by taxing credit card revenues.
Every time you use your credit card, the credit card company charges the merchant a fee (usually around 3% of the transaction, I think). The merchant passes this cost along to customers, including customers who don't use or don't even have credit cards. So it's already like a hidden tax that goes to the credit card company instead of the gov't.
It seems to me that those transaction fees, along with the interest fees and fees that credit card companies impose directly on customers (and increase arbitrarily) are a lucrative revenue stream that the state could tax**. I don't have any figures handy, but I'll bet that even 0.5% tax on all credit card fees charged in Michigan would raise a significant amount. It might also be easier to get through the legislature than other taxes. Nobody likes tax increases, but nobody likes credit card companies either. The credit card companies might be a politically acceptable target.
How might the credit card companies respond? They might try to pass the costs along to the merchants through higher transaction fees. Merchants might then pass those higher costs along, so it would in effect be like a sales tax increase. But merchants might fight back. They could charge customers who use credit cards more to cover the transaction fee (which customers could easily avoid by using cash, debit cards, or checks), or require a minimum purchase amount for credit card purchases. A few establishments do these things already. Credit card companies certainly would not want these practices to spread. Competitive pressures might also force the credit card companies and/or merchants to accept lower profits rather than passing along costs. Competitive pressures would also probably inhibit credit card companies from charging higher interest rates and fees to consumers, and also I think there is already (or soon will be) federal legislation that limits interest and fee increases.
So -- a tax on credit card revenues in Michigan. What's the downside? What am I missing?
* I know some of you think that there are always more cuts that the state could make. For purposes of this thread, let's assume for the sake of argument that we've cut all we can, and that the state budget cannot be balanced without raising more revenue.
** It occurs to me that this might run afoul of interstate commerce regulations. Maybe only the federal government could impose a tax like this. Does anyone know if this is the case?
I LOVE the credit card companies. I charge most things, they keep record for free. At tax time it is all on 8 or 9 sheets and organized. It is also a legal record. Then I pay the full amount each month.
First, the cost will always end up going back to the consumer, regardless of whether it's at the retailers' end (higher prices for CC users) or at the banks' end (higher fees or APRs). So, as you said, you're essentially charging a higher sales tax on purchases. By forcing it through another agency (in this case a bank), they're adding in their overhead/costs/profit-margins, and the government gets just a slice of that money (0.5% or whatever you want to call it), while the taxpayers are ending up paying 1% or 2% more.
Second, retailers don't have options when it comes to banks and how they treat CC or debit purchases. In their agreements with the banks when they begin to accept CCs, they clearly state that there will not be surcharges or price changes based on payment method. As much as last summer's gas-crisis may have tried to change that, retailers are not supposed to be able to do that.
Thirdly, this is yet another regressive tax, adding to a whole laundry list of them. By taxing money going out of peoples' pockets instead of money going into peoples' pockets, you're punishing those who spend a higher percentage of their income (i.e., everyone who lives week-to-week and doesn't manage to save much). Those who spend just a fraction of their income (i.e. the super-rich who control the economy in the first place) are taxed on only a fraction of their money.
Just like the ideas for "sin" taxes, it's more likely to get passed because it sounds better to the public, but it doesn't really change anything. You can tax casino revenue all you want, but in the end the government only gets a portion of the rake and the rest goes into the casino's pockets. At least sin taxes only effect people who choose to participate. This CC-tax would hurt just about everybody who has plastic in their wallet, and the banks wouldn't even blink an eye.
Even though it would be wildly unpopular, raising the sales tax 0.5% would be FAR more efficient for the government, and cost the consumers a lot less. But, if you're just looking for ways to make a lot of money for the government that would be popular with the public all you have to do is put a 75% tax on every dollar anybody reports as income after the first $500k. It'll never happen because of the lobbyists, but it'd be wildly popular.
I LOVE the credit card companies. I charge most things, they keep record for free. At tax time it is all on 8 or 9 sheets and organized. It is also a legal record. Then I pay the full amount each month.
My favorite thing about credit cards:
If the big ticket item that I purchase with my credit card is defective, then it's much easier to get a refund. It's only happened once with me, and it had to do with an airline ticket that I purchased with my Visa card.
I was on my way to a wedding, and I was bumped from my flight. As you can prob'ly guess, it was a "now or never" circumstance. The airline offered me another round trip flight with a $75 fee to be used in the next 12 months in the contiguous 48 states.
Hogwash. I bought the ticket to go to a wedding, that's it. I wanted a refund right then. The airline didn't budge, citing "policy". I went home, called Visa, and it was fixed with a 10 minute phone call.
So, yes, the credit card industry is in a lucrative business. But why shaft them? They have consistently provided me with good service, albeit I didn't like the interest rate increase that was bestowed on my account earlier this year.
That's OK....easily controlled on my end. I just pay off the entire balance each month, avoiding the new rate.
First, the cost will always end up going back to the consumer, regardless of whether it's at the retailers' end (higher prices for CC users) or at the banks' end (higher fees or APRs). So, as you said, you're essentially charging a higher sales tax on purchases. By forcing it through another agency (in this case a bank), they're adding in their overhead/costs/profit-margins, and the government gets just a slice of that money (0.5% or whatever you want to call it), while the taxpayers are ending up paying 1% or 2% more.
Second, retailers don't have options when it comes to banks and how they treat CC or debit purchases. In their agreements with the banks when they begin to accept CCs, they clearly state that there will not be surcharges or price changes based on payment method. As much as last summer's gas-crisis may have tried to change that, retailers are not supposed to be able to do that.
Thirdly, this is yet another regressive tax, adding to a whole laundry list of them. By taxing money going out of peoples' pockets instead of money going into peoples' pockets, you're punishing those who spend a higher percentage of their income (i.e., everyone who lives week-to-week and doesn't manage to save much). Those who spend just a fraction of their income (i.e. the super-rich who control the economy in the first place) are taxed on only a fraction of their money.
Just like the ideas for "sin" taxes, it's more likely to get passed because it sounds better to the public, but it doesn't really change anything. You can tax casino revenue all you want, but in the end the government only gets a portion of the rake and the rest goes into the casino's pockets. At least sin taxes only effect people who choose to participate. This CC-tax would hurt just about everybody who has plastic in their wallet, and the banks wouldn't even blink an eye.
Even though it would be wildly unpopular, raising the sales tax 0.5% would be FAR more efficient for the government, and cost the consumers a lot less. But, if you're just looking for ways to make a lot of money for the government that would be popular with the public all you have to do is put a 75% tax on every dollar anybody reports as income after the first $500k. It'll never happen because of the lobbyists, but it'd be wildly popular.
You raise relevant points, but you overstate them.
First, the cost will not necessarily go back to the consumer. The retailer or the bank may chose to eat the tax rather than lose market share.
Second, retailers do have options. Agreements can be renegotiated. (Walmart vs. Visa: who wins?) I saw several gas stations with separate prices for cash and credit on a recent trip to CT. My city charges a service fee when residents pay taxes or utility bills with a credit card. Who says they're not supposed to do that? Maybe they made a different agreement. If they can do it, others can too. The threat of this becoming widespread, which would result in significant changes in consumer behavior that would be detrimental to the credit card issuers, could give retailers significant leverage.
Third, it's not necessarily regressive, or at least not as much as you suggest. If costs get passed on in the form of higher retail prices, which you have not proven will happen, it's going to mostly hurt those who live beyond their means, but that's not necessarily the same as hurting the poor more than the rich. Lots of people with above-median incomes live from paycheck to paycheck. People who shop at dollar stores and thrift shops will be less affected because many of those places don't take credit cards. Also bear in mind that those on the lower end of the income scale are the ones who will suffer most from budget cuts if we can't increase state revenues.
Political feasibility is something we have to take into account if we want to come up with realistic solutions to the budget crisis. A progressive income tax increase would probably be the fairest way to balance the budget, but that would require a constitutional amendment. An increase in the sales tax or flat income tax is not going to happen this year. So we have to look for other alternatives.
I'm not convinced that 0.5% tax on credit card revenues would turn into a 1% price hike at the retailer, but suppose it does. That's better than slashing scholarships precisely when we most need people to continue their education, or closing more prisons, or some of the other consequences that might result if the budget crisis cannot be resolved (I don't know how much revenue this tax would generate, but you see the point).
YAZ & Driller: Easy access to credit is a good thing. I'm not out to demonize credit card issuers. But the financial sector has become too rich and powerful, as recent events have made clear. Making them pay their fair share to support the system they profit from is not giving them the shaft. And who is paying for the services that we enjoy? I pay my card off every month, too. In fact, they pay me to use their service through a point rewards system. We pay a portion through the costs that retailers pass on to us, but not all. As I mentioned, those costs are shared by shoppers who may not even have credit cards. The rest is borne by people who carry a monthly balance, who then become subject to all sorts of unscrupulous and arbitrary fee increases by the credit card issuers (or have been in the past; new legislation may change that). Those those who benefit least and can least afford it end up paying disproportionately for the system we enjoy.
It's also worth mentioning that many banks now provide many of the same services for debit cards as credit cards, including protection against fraudulent purchases. I'll be using my debit card a lot more from now on.
One of the worst ideas I've heard. The cost will get charged back so this is equivalent of a sales tax. The whole idea is based on the false assumption that you run out of things to cut. As long as money is being spent -- there are things to cut. If the law doesn't allow for cutting anything else -- change the law. Make our legislature actually balance a budget without raising taxes. Prioritize spending and cut that which has the least priority. If the state can't do it -- it deserves to go bankrupt.
It looks like merchants are already organizing against the credit card companies: Unfair Credit Card Fees
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