New Push for the Dreaded State Income Tax Disclosed

Tennesseans for Fair Taxation, which is almost the last lonely voice in Tennessee politics willing to publicly declare that a state income tax might not be so bad if coupled with a rollback of other taxes, held its annual convention recently and issued a news release on the event.
Interestingly, the release – by design or accident? – echoes at its outset the stump speech rhetoric of Republican gubernatorial nominee Bill Haslam in declaring that the Tennessee state budget is about to fall off a cliff. But TFT has a decidedly different notion about how to deal with the situation.
About 95 percent of candidates for public office in Tennessee this year declare they are ready to “stand up against an income tax.” (In the governor’s race, since there are only 19 candidates – the 2 major party guys, 14 independents and 3 duly-registered write-ins – the percentage might drop below that level because of that Green Party independent guy? And at least two state legislators are named as advocates of IT in the release.)
At any rate, here’s the latest from the powerful bunch of plotters that everybody is ready to fight:

News release from Tennesseans for Fair Taxation:
Tennessee’s budget is teetering on the edge of a cliff, and further cuts and layoffs are not the solution – Tennessee needs an option that give most residents a tax cut while still raising needed revenue, a statewide audience of concerned voters learned Sept. 25.
The group convened at Tennesseans for Fair Taxation’s Annual Meeting to express concerns about the state’s recurring budget shortfalls and learn about solutions that would provide a tax cut for two-thirds of Tennesseans while still providing the state with $1 billion in revenue.
TFT is a statewide non-profit seeking to create a more fair and progressive tax structure that ensures adequate revenues for the benefit of all Tennesseans. TFT Board Chair Dick Williams says those elected to office this November will be faced with a dire state budget forecast. “We’ve already seen college tuition rise because of lack of funding, along with state employee layoffs and drastic program cuts. But this is not the worst of it — many programs and jobs were saved this year because of federal stimulus funds and the use of non-recurring funds. These options will not be available to our next governor in preparing the budget. We must look to new revenue options if Tennessee is ever going to catch up with the rest of the nation in key quality-of-life issues.”
Vital programs that received one-time funding in 2010-11 and potentially face cuts next year include Early Childhood Education, Safe Schools, Child Care Subsidy for At-Risk Families, and Minority Health Initiatives, among dozens of others. “These programs provide direct services to those who need them, but they also contribute to the overall well-being of all residents of our state,” Williams says. “Public education, public safety, and the future economic stability of our state are all hurt when the budget isn’t sufficient to invest in our society’s needs.”
Revenue for Tennessee’s budget is overly reliant on the sales tax, and Williams says this worsens the income gap and the current recession. “Working-class families are already hurting with a high unemployment rate and service cuts just when they need them the most. In addition, Tennessee levies the highest sales tax in the nation and also taxes food – this means low- and middle-income families are paying up to 4 times more taxes than the top wage earners as a percentage of their income.”
While the nation’s attention is turned to federal legislation on extending the Bush tax cuts for the wealthy, TFT Executive Director Elizabeth Wright says the same issue has been lying dormant in Tennessee for far too long.
“For years, Tennessee has been taxing the poor at a much higher rate than the wealthy,” Wright says. “Maid services, dance lessons and private school tuition are exempt from the sales tax, while the basic necessities of life like food and diapers are taxed at some of the highest rates in the country. Not only is this unfair, but because of inflation, the sales tax revenue will never keep up with investing in the needs of our residents, which is why Tennessee sees perpetual budget shortfalls and is ranked near the top nationally in violent crime, infant mortality rates, and poverty indices.”
Two-thirds of Tennesseans would receive a tax cut and $1 billion in additional revenue would be raised under a bill introduced by Rep. Johnnie Turner and Sen. Reginald Tate. The Tax Cut and Job Creation Act would eliminate the tax on food, reduce the general sales tax, and introduce a tax on personal income with generous exemptions and higher rates for the wealthy. “This bill does not ask wealthier Tennesseans to pay more in taxes, it simply asks them to pay what lower income residents are already paying in taxes,” Wright says. “Tax modernization is vital to our state’s economic recovery and viability in the future.”
Small businesses are also a driving force of the state economy and a key component to boosting job creation during the current recession. However, small businesses struggle to succeed under Tennessee’s current tax structure. A reduction in the sales tax would increase consumer spending by lower- and middle-income families who are pinching pennies in the ongoing recession. Research by experts at the Center on Budget and Policy Priorities and the Economic Policy Institute shows that people with higher incomes typically put additional income into savings rather than spend it — a move that does nothing to boost the economy here and now.
“We know that small businesses are the key to economic recovery. Our local businesses rely on Tennessee consumers, and most Tennesseans can’t afford to spend an extra penny right now,” Williams says. “Our high sales tax pushes consumers to shop online and in border states to avoid the extra cost, and this hurts small businesses who we rely on for employment and reinvestment in our communities.”
He adds that Tennessee’s tax structure gives an advantage to large, multi-state corporations over local Tennessee businesses: “Tennessee’s code includes a ‘Las Vegas loophole’ that allows multi-state corporations to shelter income, losing the state up to $250 million in revenue annually. We also lose up to $400 million in revenue because we don’t enforce the collection of the use tax on online and out-of-state sales. This hurts Tennessee businesses and it hurts the state budget.”
The state’s lack of investment in public services like higher education means the state will fall further behind as companies choose to place new jobs in states with a higher-skilled, more educated workforce. Tennessee needs more revenue and needs to raise this revenue in a way that encourages job retention and creation now.
“Those running for political office in Tennessee cannot placate the voters anymore with faulty rhetoric and false claims — the state is facing a dire budget shortfall, and TFT has solutions that would raise more than $1 billion in revenue while providing most Tennesseans a tax cut. It’s a no-brainer,” Williams says.

4 thoughts on “New Push for the Dreaded State Income Tax Disclosed

  1. Eric Holcombe

    “This bill does not ask wealthier Tennesseans to pay more in taxes, it simply asks them to pay what lower income residents are already paying in taxes,”
    Since the lower 40% of all earners aren’t paying any federal taxes, does that mean they actually expect the upper 60% (who by their definition are “wealthy” since everyone who pays any income taxes benefits from the Bush tax cuts) to pay ZERO taxes like the lower 40% under their new tax plan? How will that raise revenue again?
    These people are fools. They insult the intelligence of Tennesseans repeatedly with their tax shell games.

  2. TNCitizen

    Eric needs to improve his reading comprehension. This article is about Tennessee’s tax structure, not the federal tax structure. Currently folks in the bottom 20% of income in TN pay 11.7% of their income in state and local taxes. The top 20% pay 4.5%. That’s because of our high reliance on consumption taxes. There’s no way to correct that situation with more consumption taxes. We must reduce consumption taxes and replace them with a broad-based income tax. That will make Tennessee’s tax structure more responsive to economic changes and more sustainable for the long haul.
    It’s interesting that Eric does not give the lowest 40% credit for paying payroll taxes. I’m sure when he whines about government spending he will include Social Security and Medicare as “unnecessary”.

  3. Eric Holcombe

    So, did I misunderstand when TFT lied about the Bush tax cuts – which in fact do apply to everyone who pays federal income taxes? TFT called the ones who benefit from those tax cuts “wealthy”:
    “While the nation’s attention is turned to federal legislation on extending the Bush tax cuts for the wealthy”
    The very next sentence of the TFT press release says:
    “For years, Tennessee has been taxing the poor at a much higher rate than the wealthy,…”
    So, it is the TFT that defines the “wealthy” as those benefiting from the federal tax cuts which is by definition every single taxpayer who actually had a net payment of federal income taxes (and not just an interest-free loan to the government that was refunded). By last count that was the upper 60% of income earners. Then they restate “wealthy” without bothering to redefine them (apparently “wealthy” Tennesseans is a different group than “wealthy” Americans and we are all supposed to have psychic powers to know which one TFT is talking about at any given time). This is followed with another lie: The RATE the state taxes citizens is exactly the same, 7%, regardless of income. They are no respecter of persons and do not have different RATEs for different income levels as TFT falsely claims. TFT is trying to make an argument based on the AMOUNT this RATE translates to as a percentage of a given person’s income, but they are cowards and will not plainly state what they really mean.
    Then the next lie:
    “The Tax Cut and Job Creation Act would …introduce a tax on personal income with generous exemptions and higher rates for the wealthy. “This bill does not ask wealthier Tennesseans to pay more in taxes it simply asks them to pay what lower income residents are already paying in taxes. Wright says.””
    Maybe you could explain to me how you are going to raise tax rates for Tennesseans (since you have scolded me not to confuse federal and state), but not pay more taxes (because right now, the state income tax rate is 0% – because a state income tax is unconstitutional). Or maybe how when a “lower income” resident (whatever that means) pays 7% sales tax on food and when a “wealthy” resident (whatever that means)pays 7% sales tax on food that somehow they aren’t paying the same tax amount because that is the false claim of the TFT here. If TFT is asking the “wealthy” to pay the same AMOUNT or RATE of tax as the “lower income”, THEY ALREADY ARE.
    Lie number 3:
    “The state’s lack of investment in public services like higher education”
    You have got to be kidding me. Higher education is has outpaced inflation rates threefold the last several years.
    So, to recap, here is the TFT mantra:
    Class Envy – tax shell game – “for the children”.

  4. TNCitizen

    The debate over the Bush tax cuts is about whether or not to extend the cuts for the very wealthy (top 2%). Sociologists and the Census Bureau divide the population into 5 equal groups by income or “class”. Each group contains 20% of the population and academics refer to them as “quintiles”. In common parlance the lowest income 20% is lower class, the next is lower-middle class, then middle, upper-middle and upper classes. Most folks think of the top 20% as wealthy and the top 2% (those with incomes over $250K) would clearly qualify as very wealthy, but TFT just referred to them as wealthy.
    As I stated before, the wealthy in TN pay a much lower percentage of their income in state and local taxes than the poor. TFT’s proposal would lower taxes for those with incomes below about $75K (depending on the source of the income, family composition and filing status) and increase them for those earning more so that the overall tax rate would be about 8%. This is only asking the wealthy to pay the same percentage in tax as everyone else. By the way, a state personal income tax IS constitutional. We have one that applies to interest and dividend income from investments. The rate is 6%. A consumption tax like Tennessee’s sales tax takes a much higher percentage of the income of a poor person who must spend a larger share of his or her income on necessities that are taxed than does someone with more income. In Tennessee a low-income family spends about 75% of its income on items that are subject to the sales tax. An upper income family spends about 25% of its income on taxable items.
    The fact that state spending on higher education has grown faster than the inflation rate is not a meaningful measure. Inflation just measures the cost of a standard “market basket” of goods. Higher education (and most government program) costs are driven more by changes in salaries, health insurance and other personnel costs than by the goods that are purchased. But the cost of the high tech equipment that higher education requires has also grown faster than inflation. The real indicator of the state’s failure to invest adequately in the education of the next generation for competition in the global marketplace is the increase in tuition that has outstripped inflation by a wider margin than the state funding for higher ed. This is a transfer of costs that are properly borne by all Tennesseans to the students and their families with the result that fewer Tennesseans will be able to afford higher education.

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