December 14, 2004
Rocky Top Tax Reform
from - smijer
I'm sorry I'm just now getting around to posting this. It was earlier this week that the Tennessee Tax Commission announced the recommendations they are making to the General Assembly to reform Tennessee's tax structure. Their outlined recommendations match the goals of Tennesseans for Fair Taxation fairly well. This is the plan:
Lower the sales tax on non-food items by more than a third to one unified state-local rate of 6% (currently varies from county-to-county with a 9.75% max).
Cut the food tax in half to one unified rate of 4% (currently, it varies with a 8.75% max rate).
Establish a graduated income tax with generous front-end deductions of $15K for single filers and $30K for couples. The rates go from 3.5% to 6% with four tiers and married families not hitting the top bracket until they make at least $100,000 a year. This new income tax would replace the current Hall Income Tax that only applies to limited types of income.
TFT advocates for no tax on food, but the cut to 4% would be a major victory for working families for whom food purchases are a large portion of their budget.
Other recommendations include a lot of good common sense stuff, like allowing the state to absorb the would-be revenue loss from counties who currently have higher local sales taxes. The major problematic recommendation is this one:
Recommend that the Legislature & Governor consider limiting the size of government by tying appropriations to a formula of population growth and personal income growth.
Such a provision would limit the states' ability to take in new revenue. With our current budget, we fund education less than all but 48 of the other states in the union and we cannot afford state health insurance for the poor. It would be nice to at least leave open the possibility of increasing state revenue for worthwhile purposes.
This is a no-brainer. The only argument anyone can even make against it is the trumped up charge that the Tennessee Constitution forbids an income tax (it doesn't, and if it did, it would be worth amending it for the purpose). The standard argument that it is a tax increase doesn't hold water, because after taking into account the sales tax decrease, 4 out of 5 households - anybody making $75,000 or less, will pay less in taxes. (Update: Les Jones, in the comments offers another argument along the lines of slippery slope, but I think the merits outweigh the risks by a long shot even so.) It keeps business and jobs in the state by making it less profitable for Tennesseans to cross the state line or pop onto the internet to shop, and by making Tennessee shopping more attractive to out-of-staters. It takes the majority of the state tax burden off of the shoulders of the working class (where it currently lies), and distributes it evenly accross income ranges. Everybody wins. Except a few of us may have to give up our $12000 Massage chairs... Not really though, because a rising tide floats all ships, and the people who shop for massage chairs will likely be enriched when the state becomes more business friendly, too. Maybe we can call it "trickle-up" economics...
Anyway, if you are a Tennessean and reading this, I challenge you to write a letter to your paper, or get on the phone with your state representative and support this. The only thing that will keep us from having a better state is the good-old-boy network at the top who thinks maybe nobody is noticing.
(P.S. For Hamilton County Residents who didn't know that Tennessee was 49th in per capita education spending, here's another fun fact: Hamilton County gets the least amount of any county for public education per capita in the state.)
(PP.S. 17% of Tennesseans currently have college degrees. Would you want to base your business here?)
Posted by smijer at December 14, 2004 07:52 PM
I used to be in favor of the income tax, and I could still support it, but I'm with Bill Hobbs now. I'd only support it if there was a constitutional amendment limiting how much the state could tax us. Otherwise we're just opening the door to endless tax increases.
I want to see TennCare saved, but it needs to be saved via reform, not by shoveling more money into it. That's Bredesen's position, as well. Right now 1 in 4 Tennesseeans is on TennCare. That's just too many people. There are also needs to be co-pays and reasonable limits on doctor visits, hospital visits, and prescriptions. Currently, there aren't any.
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Posted by Les Jones on December 14, 2004 09:05 PM Link to comment |
We're having endless tax increases now. Especially those of us making $50000 or less. Why not straighten out the tax system, then work on an amendment to keep it from getting out of hand?
I'm old fashioned - I think if the state income tax is passed and later taxes are raised too high, you vote out the legislature that raised them, and vote in one that will cut them. It isn't hard to get a tax-cutter into office anywhere in the south, after all.
As it is, the hidden tax on the economy from a leviathan consumer tax driven budget is worse than any imaginable alternative. And the people who are suffering the worst under it are the people who need it most.
I hope you'll write your representative to fix the tax mess we currently have, and not hold out on that while you're waiting for the utopian ideal of a constitutionally mandated limit on taxes.
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Posted by smijer on December 14, 2004 09:12 PM Link to comment |
"We're having endless tax increases now."
The last state tax increase was like two years ago. There have been tax increases at the county or city level, but that's separate from the state taxes.
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Posted by Les Jones on December 15, 2004 09:04 AM Link to comment |
Nice post. I agree.
Increases in your county and city taxes are not separate from state taxes. County and city governments raise your taxes to make up for less money coming from Nashville.
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Posted by Paul Witt on December 15, 2004 09:26 AM Link to comment |
"(PP.S. 17% of Tennesseans currently have college degrees. Would you want to base your business here?)"
If i only needed 17 percent of my work force to have college degree, i sure would. In other words, factories and other blue collar labor would proably do well.
So i depends on what kind of work you are trying to attarct.
As far as limiting the growth of taxes to a specific formula, what happens if the state changes the formula because they want more money?
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Posted by cube on December 15, 2004 11:03 AM Link to comment |
If i only needed 17 percent of my work force to have college degree, i sure would. In other words, factories and other blue collar labor would proably do well.
Ahh.. the revolution of lowered expectations... But I don't know if it works any more. If you don't need an educated work force, Thailand is probably going to be your most efficient choice.
As far as limiting the growth of taxes to a specific formula, what happens if the state changes the formula because they want more money?
Then you vote them out and vote in whoever promises to change it back.
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Posted by smijer on December 15, 2004 11:22 AM Link to comment |
I'm getting a lot of, "yes it's broke, but no, let's don't fix it because then those unaccountable lawmakers might be able to spend more money."
I can't help but wonder where all of the fear comes from that a bunch of southern Bush-supporting politicians are going to raise taxes on us if they have an income tax, but won't raise taxes any further while the working families are paying the bulk of it through consumption taxes.
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Posted by smijer on December 15, 2004 11:26 AM Link to comment |
* To me, thinking one type of tax is easier to raise than another is silly, as long as they're all fairly transparent.
That may be the kicker - you may not notice as easily that income tax rates are going up as you would sales tax or other consumption taxes. But that's just a guess, and a long shot guess at that. I think the idea has merit.
* I get so tired of the thinly- and not-so-thinly- veiled hints that a state income tax is "Evil". You've heard it - people seem to equate invoking a state income tax on par with turning over the government to Satan and his minions. Or Democrats, whichever are worse. Why else would we see people driving their cars around the capitol, honking horns and making general nuisances of themselves?
* One more thing - 17% of Tennesseeans are college grads. Is there evidence to support that number will start to go up in 4-5 years or so, after the new batch of lottery scholarship students work their way (or don't work their way) through the system? Or will the number actually decrease, due to a general lowering of quality of students? Any studies anyone knows of?
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Posted by Barry on December 15, 2004 11:39 AM Link to comment |
Barry, I don't think it's evil, but I think it's very likely to wind up being an overall tax increase if there aren't limits built into it. Smijer implies that when he says this will provide more money for education and TennCare.
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Posted by Les Jones on December 15, 2004 09:39 PM Link to comment |
That's why congressment have finite terms - if they start to increase the tax rate, then vote them out and vote in people who won't do it.
I just think you shouldn't handcuff the system every time there's a chance it could be abused - just shorten the leash on the legislators.
This should be the solution for every fiscal problem, really. Sometimes we work so hard protecting ourselves from ourselves, we lose the freedom to be creative and find new solutions.
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Posted by Barry on December 16, 2004 12:32 AM Link to comment |
