Tuesday, June 15, 2004

When the Good is Bad

The Commercial Appeal ran an AP story Monday about Tennessee having the 4th-lowest tax burden. It starts as a fairly balanced story that highlights Tennessee's attraction to new business.

Of course, no story on taxes in Tennessee is complete without a quote from Bill Fox, he of the doom and gloom forecasts for the Sundquist administration back when they were trying to get an income tax.
"We're a relatively low-tax state, which is certainly a desirable goal," said Bill Fox, a University of Tennessee economist who directs the Center for Business and Economic Research in Knoxville. "But, of course, with lower taxes there is also less government spending, and that puts Tennessee at a disadvantage for funding of schools, colleges and other government programs."
Or giving no-bid contracts to your friends and creating all kinds of government agencies that Fox conveniently declines to include in his description.

After the good start, the article then declines into an income tax boost. We get a member of Tennesseans for Fair Taxation, a pro-income tax group, and Nelson Andrews of the pro-income tax Sundquist tax-reform committee, being quoted as calling the sales tax unresponsive.
"The sales tax doesn't grow as fast as the overall economy and with our state budget needs," he said.

"The sales tax is no longer an effective source of revenue when people can buy on the Internet, which is exempt from local sales taxes, or drive across the state line to border states with lower sales tax rates."

Nelson Andrews, who has chaired a committee that spent the past 18 months analyzing the state's tax system, said most of the 15 members agree some type of reform is necessary.

"If you need to raise more money, then you have to tax either sales, wealth or income and, frankly, the sales tax at this point is maxed out," he said. "We're going to have to look at ways to tax wealth or income in some manner because the sales tax is already very high and tends to be inelastic."
Unfortunately, everything they've just said isn't true! The bit about Internet sales was misinformation from Bill Fox back in the Income Tax War days. Fox tried to claim that Tennessee was losing Internet sales to the tune of one billion dollars a year -- a patent absurdity.

I don't know of any recent studies, but loss of sales to cross-border travel is something of a problem, as any Memphian knows. No one has quantified that loss, however, and I still don't understand folks who will spend more in gas and travel time and aggravation than the two or three dollars they save making the trip.

As for the present tax structure not keeping up? Already this year, with an economic recovery still being debated politically, the State of Tennessee is running a $277 million tax revenue surplus! And that's with two more months left to go; estimates for the final surplus are well over $300 million. Read more here.

Is that tax surplus being returned to you via a cut in the sales tax? It is not. Don't believe the hype. Demand the truth from the local papers, which haven't covered this surplus yet, and television news, which hasn't covered it at all to my knowledge.

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