Big winners, many losers

Big winners, many losers

May 30th, 2012 in Opinion Times

It's hard to head into another hot summer without venting steam over the way Republicans in control of Tennessee's Legislature again left Nashville with ordinary Tennesseans paying among the nation's highest sales taxes on food, while they bragged about granting the state's richest citizens the biggest tax cuts the top 1-tenth of the top 1 percent has received in modern times. The unfair disparity could not be more glaring.

A large majority of states that levy sales taxes exempt both food and prescription drugs from such taxes. Of the five states that do levy sales taxes on food, just two apply higher sales taxes on food than Tennessee's new rate, which the Legislature reduced from 5.5 percent to 5.25 percent. Mississippi charges 7 percent in sales taxes on food, and Kansas puts on 6 percent. Alabama's food sales tax is 4 percent; and West Virginia's is 3 percent.

The cost to the state to cut the sales tax on food by a quarter of penny in Tennessee is estimated to be around $20.4 million. By contrast, the state expects to lose $104.1 million over the next four budget years when it finishes phasing out the state's inheritance tax, which falls mainly on a statistically tiny fraction -- in the thousandths of one percent -- of wealthy Tennesseans.

In the budget year now ending, for example, 845 families paid $98 million in state inheritance taxes. In a state of 6.4 million people, it's an exceedingly rare family that ever pays state taxes on inherited wealth. The phase-out raises the exemption on state inheritance taxes in the 2012-2013 fiscal year to $1.25 million; to $2 million in 2013-2014; to $5 million in 2014-2015, and then drops it altogether. Dropping the tax on estates of more than $5 million, the state Department of Revenue estimates, will leave just 39 families affected. (The Legislature's other gift to high-income Tennesseans this year was ending the tax on sizable cash gifts to families members and friends, a practice of more affluent citizens. That will cost the state another $15 million in lost revenue.)

This figures suggest at least two things: One is that the bulk of the state's inheritance comes from very wealthy families at the top end of multi-million-dollar estates. The other is that Gov. Bill Haslam's family, among the scions of his family's national Pilot Oil company, will richly benefit from the governor's personal drive to end the state inheritance tax on super-wealthy families like his own. That makes his crusade to end the upper-end of the estate tax a blatant conflict of interest.

The contrast with the state's treatment of sales tax on food, then, is all the more notable. Had Haslam cared more about Tennessee's ordinary working families, he would have better served the state by arguing for a more significant cut in the state sales tax on food. He could have lowered the rate five times his quarter-of-a-penny cut over the same time period -- to 4.25 percent -- and it would have cost the state less than ending the state inheritance tax.

As it is, the 1/4-penny cut will save a Tennessee family of four, making the state's median family income of around $54,000 a year (usually with two incomes), about $15 a year on grocery purchases of $5,200 a year, or $100 a week. Over a year, that's an invisible gain. Against inflation, it leaves ordinary Tennesseans going backwards -- and losing more ground to the most regressive tax in the state's revenue base.

It's no wonder that the income gap between ordinary Tennesseans and the ultra-wealthy continues to broaden in Tennessee, as elsewhere. What's amazing is how Republican lawmakers and Gov. Haslam think that is so wonderful.