published Saturday, October 1st, 2011

Tennessee's punishing tax

The nonpartisan Tax Foundation's report confirms that Tennesseans continue to pay the highest average sales taxes in the nation -- an average of 9.43 cents on every dollar's worth of purchases. This is no surprise. Tennessee has ranked for some time as having the highest rate of this regressive tax.

This dismal ranking, however, is absolutely shameful. Operating without a state income tax on the more affluent to achieve tax equity, Tennessee has become the worst state for tax inequity. Our high sales taxes (7 percent for the state and up to 2.75 percent in local option sales taxes) forces citizens with middle-to-low incomes to pay a far higher percentage of their income in combined sales taxes than upper-income and wealthy Tennesseans pay. Indeed, the less they earn, the higher their effective rate of tax payment; and vice versa.

This punishing inequity speaks volumes about our lawmakers' disdain for fairness and tax equity for ordinary Tennesseans.

The median income (half are higher, and half or lower) for Tennessee households is just $41,725, according to 2010 Census information. Other Census figures show that the average household income for a family of four is around $57,000, and that figure often represents two incomes.

In fact, fully half of Tennessee's 1,640,000 households have annual incomes of less than $50,000, and nearly 70 percent of Tennessee families have incomes below $75,000. Just 17 percent of households have incomes over $100,000, and only 3.2 percent have incomes above $200,000.

Given the cost of living for food, gasoline, utilities and rearing children and paying for education, it's clear that the vast majority of Tennessee's families must spend most of their net income on necessary items. And they pay sales taxes, at nearly 9.5 percent, on all of that spending. Even with the sales tax on food reduced a few years ago to 5.5 percent, it's still the nation's third highest rate on food.

This unfairness is aggravated by the state's dismal income ranking (44th among states) and high levels of poverty (roughly 22 percent of households have incomes of less than $25,000).

The consequence for Tennesseans is that people who earn the least pay a far higher percentage of their income in sales taxes -- the state's chief source of income -- than do more affluent Tennesseans, who are able to devote a higher share of their income to activities -- savings, travel and investments -- that do not incur the state's sales tax.

A fairer way to tax Tennesseans for state government would be to establish an income tax that would equitably shift a proportional share of the state's tax burden to more affluent Tennesseans. The last serious stab at tax reform came under former Gov. Don Sundquist, who in 1999 proposed broadening state excise and business taxes and eliminating sales taxes on food altogether.

And even broader proposal for a state income tax was advocated in the 1990s by Rep. Steve Cohen. His proposal would have established a nominal state income tax and vastly reduced sales taxes -- and eliminated sales taxes on food entirely, as well. Two-thirds of Tennessee households would have paid less in overall state taxes, while the upper third, at last, would have paid a proportional fair share.

It's true, of course, that the state's Republican lawmakers will not allow establishment of a more fair tax system. Their political slant on the matter is that an income tax would just add another layer of tax, and fatten government. In reality, it would firmly establish a fairer system, even if it was fixed to be revenue neutral. The real reason Republicans won't consider a revenue system balanced fairly with an income tax is that their wealthy donors don't want it: They're happier paying less, and their Republican puppets are glad to kowtow to them.

That's not fair to the vast majority of Tennessee's citizens, but without public pressure for change, the punishing tax inequity will remain fixed.

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EaTn said...

I'm sitting here stunned that this very correct article on the inequities of our state tax system is on the right side of the TFP. Either someone did a big mix-up or the TFP has mingled in the community and realized the ridiculous state sales tax is putting the squeeze on folks that are already hurting.

October 1, 2011 at 4:49 a.m.
conservative said...

This is pure Marxist thinking. Your statement " that people who earn the least pay a far higher percentage of their income in sales taxes" is indisputable math. Also indisputable is the fact that these same people who earn the least pay a far higher percentage of their income when they purchase any item such as beer, tobacco, drugs, and lottery tickets. This applies to their subsidized rent payment and the price they pay for a prostitute as well. This is nothing more than an attempt to instill a sense of unfairness in the weak and uneducated to gain a vote for a state income tax.

October 1, 2011 at 8:15 a.m.
EaTn said...

conservative--if you want to see the future of our country on your way of thinking, take a little trip south of the border.

October 1, 2011 at 10:24 a.m.
nucanuck said...

conservative seems to think that ME, ME, ME, trumps WE, WE, WE. The truth, of course, is that the wider the disparity, the more unstable the society. Progressive taxation neither makes the rich poor nor the poor rich. It can however, help prevent such wide disparity that society breaks down. America is near that point now.

Achieving balance is so important throughout so many aspects of our life.

October 1, 2011 at 11:03 a.m.
conservative said...

The great state of Tennessee attracts a lot of business (think car companies) which actually hire people which means income for those people. A state income tax would deter many companies from coming here. You concede there is not going to be a state income tax so why not advocate "tax cuts for the poor"? Or are you too committed to socialism?

October 1, 2011 at 5:57 p.m.
EaTn said...

conservative said.."Or are you too committed to socialism?"

Funny, that's the argument I kept hearing from the upper crust on my trips south of the border.

October 1, 2011 at 7:19 p.m.

Who cares what is going on south of the border.. That is Mexico. This is the UNITED STATES. Regardless of what you progressives want, there is a border there. They don't have the U.S. constitution or farming base or service base or economy or laws or etc etc etc... You are comparing apples to small, ugly rocks.

Sales taxes are fair because they tax everyone evenly. If you progressives want to lower taxes on those who are already hurt the most, quit coming up with more ways to spend those tax dollars and lower tax rates. Quit finding ways to make more and more people dependant upon the govt. What you are suggesting is the same old tripe that got us where we are now. Stop trying to destroy my country.

October 3, 2011 at 11:18 a.m.
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