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.