A wall against tax fairness

A wall against tax fairness

January 23rd, 2012 in Opinion Times

Tennessee's Republican legislators would have the state's voters and citizens believe that they are doing them a great favor by promoting an amendment to the state Constitution to ban the creation of a state income tax. How wrong they are.

Writing a clear ban against an income tax into the state Constitution would only cement, perpetuate and worsen the gross inequity in taxation that now falls on the vast majority of Tennesseans from the highest and most regressive level of state sales taxes in the nation.

Creation of a progressive income tax would not only make it possible to significantly reduce, or eliminate, the regressive sales tax. It would also shift a fairer portion of the state's tax burden to the state's more affluent earners, who now pay a disproportionately low share. Such a shift, earlier studies confirm, would lower the total state tax burden now paid by more than two-thirds of Tennessee families -- the middle to lower-income families with incomes below $55,000 a year.

These are the Tennesseans who bear the brunt of the inequity of the current sales tax, which with local sales taxes amounts to nearly 10 percent. They are ones who deserve an honest tax break, not the richer Tennesseans who always have paid an unfairly small share.

The reason the sales tax burden is so regressive is that a large majority of Tennessee families do not make enough money to set aside much, if any, in savings. They must spend all of their income just to pay their bills and mortgages, to buy groceries and help their kids pay for college. Because they're forced by economic necessity to spend all of their income, they end up paying state sales taxes on a far higher percentage of their income for basic necessities than do more affluent Tennesseans.

More affluent citizens pay less in states sales taxes, as a percentage of their income, because their higher earnings allow them to avoid state sales taxes simply by saving or investing more, or by spending outside the state on travel and out-of-state purchases.

The regressivity of the state sales tax has been well documented. When Rep. Steve Cohen, of Memphis, previously served in the state Senate, his research showed that fully two-thirds of Tennessee's would pay significantly less in state taxes if the state slashed the general sales tax rate from the current 7 percent rate to about 3 percent, eliminated the sales tax on groceries (it's now 5.5 percent) , and coupled the lower rate with a modest income tax, about 5 or 6 percent, on higher earners. His formula, moreover, would have resulted in a billion dollars more in state revenue.

It's understandable that citizens who haven't had the time or opportunity to look at their possible tax savings under such a reform have an emotional knee-jerk reaction to the idea of a state income tax. They are getting shafted under the present sales tax (counties can piggyback a sales tax rate of up to 2.75 percent). So they naturally mistrust the idea of coupling the state sales tax with a state income tax, even when proposed on condition of a concrete cap on sales taxes. They just don't want the Legislature to raise their taxes, so they're easy targets for Republicans' specious anti-tax rants.

It's another question, however, as to why Republican legislators, who claim to espouse a high level of family values, are not leaders in behalf of legitimate tax reform that would promote tax fairness -- and save the vast majority of Tennesseans some needed money.

It's obvious, of course, that Republicans just want to grandstand against an income tax, while they keep intact their complicit alliance with lobbyists and rich campaign donors who make out like bandits under Tennessee's current, regressive sales tax structure.

So they now stand ready to push a constitutional amendment to explicitly ban a state income tax. There's no sign on the political horizon, of course, of anyone ready to propose a state income tax.

But never mind. The House passed a bill to approve a measure last Thursday to go with the companion bill adopted last year by the state Senate. Now it must be approved by a two-thirds vote in each chamber of the next Legislature before it can be put on a statewide ballot in 2014.

Such phony grandstanding is deplorable. It's a disservice to the state and, if ultimately approved by voters, would ensure that Tennessee's fiscal structure -- and the tax burden on the vast majority of Tennesseans -- remains grossly unfair and inadequate for a long time.