Friday, April 09, 2004

Tennessee Sales Tax Revenue News

I haven't covered the sales tax issue -- which encompasses the State budget, the sales tax, revenue surpluses and the Tennessee Taxpayer's Bill of Rights -- like I should. Heaven knows the local papers barely cover it at all!

First is the great news that Tennessee, for the eighth month in a row, is running a surplus in sales tax revenue collection. Lately, that surplus is running more than 7% over last year! If current projections hold, we might have as much as $200 million in surplus by the end of the fiscal year. This from the supposedly inelastic sales tax. You can read some detailed discussion from Bill Hobbs, a Nashville blogger who stays on top of this issue.

Now, comes news that the Bredesen administration is quietly proposing its first tax increase. It's a business tax that Bredesen spokespeople and legislators are denying is a tax increase. This is the first major deviation from Bredesen on his "no new taxes" pledges, and for something he doesn't need. Again, Hobbs breaks it all down quite nicely. In fact, if you're new to the subject and want to get up to speed, I highly recommend reading Hobb's ouevre on Tennessee, taxes and revenue.

Hobbs is also a champion of something I'm leery of: the Tennessee Taxpayer's Bill of Rights. You can visit the TNTABOR site here. Hobbs' thoughts are here. TABOR has been highly successful in Colorado, where Tennessee is drawing its inspiration from. Basically, TABOR constitutionally limits the growth of spending to the rate of inflation plus the rate of population growth. Tennessee has a constitutional cap on spending growth, but it can be overridden by a simple majority of the Legislature, and has been for nearly all of the last twenty years. That's why Tennessee is in the fiscal situation it's in. (Well, that and TennCare.)

Under TABOR, any time the State takes in more tax money than they have budgeted for, it must be returned to the people either by a tax rebate or by a reduction in the tax rate. The only way this can be overridden is by a vote of the people. If the Legislature wants to spend some of that money on public works or budget increases or special projects, then a vote of the people must be taken first. In Colorado, this has meant mostly tax refunds, but the people have regularly voted to spend money on education there. TABOR has been a rein on the outlandish spending that legislators want to indulge.

The main reason I haven't advocated before for TABOR is that Tennessee doesn't have an income tax as Colorado does. I'd like to keep things that way. Giving legislators access to my wallet is like giving a greedy child the keys to Toys-R-Us. No-income-tax states have done better in bad times than income tax states, and do better overall in attracting business. As previously constituted during the Income Tax Wars, an income tax in Tennessee would have shifted the entire burden of funding State government to just 40% of the population, and it would have eliminated the Hall tax on investment income, a long-time goal of the very wealthy in Tennessee. As it is, a sales tax spreads the tax burden to everyone, even to folks who travel through our State. That, to me, is more fair than having a minority pay for it.

TABOR always sounded to me like a side-wise entrance for an income tax. Turns out that's not so. It can also be implemented within Tennessee's current tax structure. A couple of Middle Tennessee towns have successfully adopted TABOR, and there's legislation to get a watered-down version passed in the State Legislature. It wouldn't change the current structure and would provide the inflation/population rate cap. That got my attention. I could support that.

But. There's always a "but." The State bill would also make it much easier to adjust the State's tax structure, taking approval of an income tax from the voters and placing it in the Legislature. No. A thousand times no. I will not see that happen, if I can help it. The income tax was a big part of the reason I got into blogging. I don't make enough money to have the State take more from me.

Actually, that's not quite true. I studied the previous proposal and I was low enough income to be free of the income tax (IT), while also having my sales tax lowered. That would have made the IT a net bonus for me. And yet I still opposed the IT because it wouldn't have been fair to that other 40% of Tennesseans who would assume my burden. I discovered I had principles.

Go to HobbsOnline and TN TABOR to read up. Make up your own mind. Go to the opposition, Tennesseans for Fair Taxation and check them out, though I warn you they are backed by the State employees' unions and the teacher's union, and are given to distortion and hyperbole, so watch yourself. Also read this editorial in the Tennessean. You can see another example of TFT thinking in this Commercial Appeal story. (Scroll down to the bottom.) The Commercial Appeal has mostly by-passed this story since the Peckera -- excuse me, Peck Era, started. Politics at the State level has been deprecated sharply.

I'm still not fully behind the TABOR, but I will advocate that we continue to explore it and refine how it gets implemented in Tennessee. Explore for yourselves, as this will become a bell-wether issue in the future.

I think the Legislature should consider reducing the sales tax. Just a quarter-cent reduction would still leave us with a balanced budget next year as the economy continues to grow. It sounds like a symbolic thing, and mostly it would be. But what a symbol! It would build enormous goodwill and prove that the Legislature is aware of what the people are saying. I'll post more on this later, along with some graphics to use.

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