Posted on 06/19/2002 4:44:44 AM PDT by GailA
Rationale for state’s flat tax reform plan Commentary By James Naifeh
We are a low-tax state, and even after tax reform, we will continue to be a low-tax state. The average Tennessean pays less in state and local taxes than the citizens of any other state. Including the District of Columbia, we rank 51st in the nation in per capita taxation.
While being ranked last in taxation is a good thing, it does have consequences. If we insist on being 51st in taxes, we will never rank much higher in areas that are important to all of us, like education and health care.
Our current consumption-based tax system grows at a slower pace than the cost of services being provided for two simple reasons. First, over the last 20 years, we have dramatically shifted our purchasing away from the purchase of goods, which are taxable, to the purchase of services, which are not taxed. Second, under federal law, most purchases made over the Internet are not subject to state sales tax; it is estimated that Internet sales are costing us over $300 million annually in tax growth.
So why not tax services? The largest areas of services not taxed are for health care and construction spending. To most people, taxing health care services is morally objectionable. Taxing construction just adds to the cost of housing, making it more difficult for people to buy a new house or for businesses to expand.
Why has Tennessee’s budget increased so much through the years? Over time, the demand for services from state government has grown due to both general population growth and other factors that grow faster than the general population, such as the number of people sentenced to state prisons, the number of students in higher education institutions, and the number of cases processed through our court system. The result is that with the current tax system, we can’t keep up with current service demands, much less move into a higher ranking in spending on priorities such as education, health care, and public safety. A change in the tax system is needed.
The current system is unfair — it asks lower-income families to pay a higher share of their income in state taxes because we tax the consumption of basic needs — like food, clothing and gasoline. A family making $12,600 pays approximately 12 percent of its income in state and local taxes while a family making $159,000 pays approximately 4 percent of its income in state and local taxes. This is unfair.
I support the flat tax reform plan because it creates a fairer tax system and represents a long-term solution to the state’s funding needs. The plan removes the state and local sales tax on groceries, non-prescription drugs, and on clothing with a value of less than $500. This provides some tax relief to low- and middle-income families, as well as to our elderly population who live on a fixed income.
To have a balanced budget next year, we must find a way to raise revenue, or we must reduce the current budget by $950 million. I don’t want to cut $950 million from the existing spending given the severe consequences it will have on every citizen in this state. Then how are we going to raise this money? We can either reform the system by choosing fairness and long-term stability, or we can perpetuate the current unfair and inadequate system and continue to have a similar problem in the years ahead.
James O. Naifeh is speaker of the House of the Tennessee General Assembly.
800-449-8366 + 1 + the last 4 digits of their Nashville legislative office...or 615-741-3011
House Speaker Jimmy Naifeh's whiny op-ed published by Nashville City Paper Tuesday is Swiss Cheese-like in its truth content: full of holes. Too many to discuss. Here's one particularly bad section, loaded with half-truths, lies and conflicts of logic:
First, over the last 20 years, we have dramatically shifted our purchasing away from the purchase of goods, which are taxable, to the purchase of services, which are not taxed. Second, under federal law, most purchases made over the Internet are not subject to state sales tax; it is estimated that Internet sales are costing us over $300 million annually in tax growth. So why not tax services? The largest areas of services not taxed are for health care and construction spending. To most people, taxing health care services is morally objectionable. Taxing construction just adds to the cost of housing, making it more difficult for people to buy a new house or for businesses to expand.
Now, the facts: 1. Over the past several years, Naifeh and his compadres have failed to adjust the sales tax to reflect the modern economy's shift to the purchase of more services, and even outright passed big exemptions for special interests that cost the state more than $2 billion a year at the current state sales tax rate. The state could easily lower the tax rate and expand the sales tax base, creating a fairer and more eonomically appropriate tax code. But Naifeh and his pals get too much money from special-interest lobbyists for that to happen.
2. The claim that the state is losing $300 million a year in tax revenue due to online commerce is widely reported but its academic foundation is weak - a rush-job "study" by pro-income tax economist Dr. Bill Fox at the University of Tennessee-Knoxville based on wildly inflated predictions of the growth of ecommerce that were made before the Internet boom went bust. The $300 million is beyond dubious. It equals the state's annual tax take from about 20 or 21 major shopping malls. If the state is losing that much sales tax revenue to ecommerce, that means the equivalent of the annual sales volume of every mall in Nashville, Memphis, Knoxville, Chattanooga - plus a few more shifted from the malls to the Internet. Yet Tennessee has seen new malls opening in recent years, and none have closed. Fox's prediction of huge e-commerce sales tax losses for Tennessee and other states simply has not come true, but Naifeh peddles the lie like it is a fact. (For a more thorough debunking of the $300 million claim that Fox made and Naifeh is parroting.
SEE LINK FOR REST OF ARTICLE: HOBBS
Naifeh states that we have shifted a large portion of our incomes from purchase of goods to purchase of services. But we can't tax those services because the majority of that is medical services and home construction.
SO, I have stopped purchasing as many goods to pay for my doctor and my house, and evidently the cost growth of these items is faster than other items in the economy. His solution is to tax my income, thereby leaving me LESS to spend on health care and housing. The result is obvious. I will spend money on health care anyway, so I will spend less on the purchase of other goods, eroding the sales tax base and I will spend less on housing, thereby eroding home construction, the two components he claims that he is trying to protect.
Just because someone works hard and sacrifices to become a highly paid worker does not mean they should be punished.
If they want to talk percentages the top 10% of earners pay something like 90% of all taxes. Try cutting expenses. Education is a good place to start. With all the hype about "qualified teachers" home schooled children score higher on SATS than those taught by "qualified teachers". Maybe we should be looking at "effective teachers" regardless of the pedigree they possess. Start running the state like a business with a bottom line and realize that there are some things that can't be paid for.
The other day my wife and I were in the market to buy some food items. We watched as two overweight people bought tons of junk food along with healthy food. They paid for the healthy food with food stamps and this allowed them enough other money to buy beer, chips, ice cream and soda. I paid for their food so they could get fatter on junk food and wasn't even invited to their house for the party. That's another place to cut spending.
This is so horribly bad, it must be responded to. A family making $12,600 has one individual working only 40 hours a week for six dollars an hour. Assuming they have no income tax withheld, their social security withholding would be about 7%, or $882 a year. This leaves a maximym monthly take home pay of $976. Since they can only pay about 8% of their income in sales tax if they spend EVERY dime of it on a taxable item, then they must have another tax that is greater than 8% on some portion of their income.
This would have to be a property tax on their home. Does anyone believe a family making 12,600 a year could get a bank loan? Let's pretend for a minute that they could. Assume they spend 50% of their takehome pay on a house payment. For their total tax rate to be equal to 12% with half of it taxed at 8%, the other half would have to be taxed at 16%! ($2016 a year). If they are taxed at the high rate of $5 per $1000 of assesed value, the assesed value of the house would need to be $403,200!
Note that this assumes that the family spends NO money on untaxable services such as health care. This is OK though because such a family would be on TennCare and also on Food Stamps (though that would make it even more difficult to spend money on sales taxes!)
For the other family, we have $159,000 and only 4 percent ($6360) spent on state and local taxes. This is immediatly more likely since the federal government is going to take aoubt 30% of this families income right off the top, reducing their take to 111,300. This family also pays for it's own healthcare, say $500 a month reducing the state taxable amount to 105,300. To pay $6360 at 8% requires the expenditure of 79,500 (6,625 a month)on TAXABLE items leaving $25,800 to do somthing with besides tax, such as housinng, saving and investing. Don't forget though, that the investing is likely to be hit by the Hall Income Tax.
So it does seem possible the rich family might only pay four percent but it is subsidizing several of the poor families through it's high federal taxes. There is no way the poor family is paying 12.
Because politicians are greedy and want more money to buy votes and ego gratification.
And you know property taxes have skyrocketed here....from between 25-50% both commercially and residentially. Commercially, my property tax is now my biggest ticket after debt servicing...nearly 30% of my net cash flow. All for public schools we prefer not to use. It's always about the poor or the children when in reality it's only about the government's inability and lack of will to reel in spending. Naifeh, the Fords, Rochelle, Sundquist, Cohen....they are all lying, stealing charlatans. Tennessee really only has a few "leaders". The media sans Talk Radio is completely on the side of the "tax reform" liars.
He started off bad. What's wrong with low taxes? Why not keep it that way? Why on earth would anyone want to give their money to the never-ending pit? Answer - because they are dependents or don't pay taxes.
me too !!....we don't pay our water bill that way. We should add up what they need and divide by the number of taxpayers.
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