Republican Bruce Rauner is challenging Illinois Gov. Pat Quinn (D) in this fall's gubernatorial election. One of Rauner’s big ideas is tax reform. In a nutshell, he wants to cut personal income taxes, freeze property taxes, and expand the sales tax to cover 31 services -- including those provided by lawyers.
From the reaction of the Illinois State Bar Association, you would think that Rauner had committed a pretty big sin. It said Rauner’s proposal to impose sales tax on the services provided by attorneys would hurt clients and curtail access to justice! Blogs and social media are abuzz about Rauner’s chutzpah. In fact, in a touch of delicious irony, lawyers are criticizing Rauner for calling for income tax cuts while being a really rich guy! In any event, Rauner has made no friends among the lawyers who are prepared to fight his tax reform plan.
For the record, I don’t like taxes. But if you’re going to have a government, you should pay for it the right way. Sales tax should be paid by consumers on all their purchases. Business inputs should never be subject to sales tax. Everyone who has ever studied or even thought about consumption taxes knows that. So it makes sense that legal services should be taxed. Lawyers don’t like that because, well, people might use less of their services. That would be a tragedy beyond comprehension.
The vehement opposition to imposing sales tax on professional services is not new. Real estate agents frequently assert that taxing their services would destroy the American dream of homeownership. Tales of woe have been told by architects, funeral directors, and accountants. Professional services are generally never subject to sales tax. That is not because the professionals are right in their arguments, but because they are powerful political forces. Nonprofessionals like tattoo artists and ear piercers don’t have the same kind of clout -- their services get taxed.
A few years back, the governor of Minnesota proposed taxing legal services. The Minnesota bar sprung into action, claiming that such a tax would essentially destroy the foundations of American democracy. Basically, the lawyers argued that the sales tax would do what Hitler, Stalin, Mao, and bin Laden could not. But the lawyers in Minnesota, like the lawyers in Illinois, are all about protecting their economic interests. I understand that, but as a society we should reject the special treatment of professionals for tax purposes. Rauner is right. Legal fees, like all consumption, should be subject to sales tax.