Guest columnist Dale Bails: Taxpayers need facts to weigh income tax
April 28, 2002
Guest columnist Dale Bails is an associate professor of economics at Christian Brothers University.
During each legislative session, Tennessee voters are berated for their shortsighted views on the state's revenue shortfall. They are accused of a failure to understand the problem, or of an unwillingness to address the issue of basic tax reform. These arguments demand to be confronted.
Many lawmakers and such special interest groups as public education unions believe the state's budget problems stem from a lack of revenue growth. This argument is advanced each time budget decisions must be made, but it doesn't match reality.
According to the Tennessee Department of Revenue, state tax revenues have increased by 26 percent over the past five years and 82 percent over the past 10 years. Although tax revenues increased by only 1 percent in the past fiscal year, they increased by more than 8 percent in the preceding year. How many Tennesseans saw their personal incomes increase by a like amount over the past two years?
An evaluation of state spending is equally revealing. Expenditures this fiscal year are more than 6 percent higher than last year's, and are projected to rise by another 6.5 percent next year.
THE LARGEST increase is in what is referred to as "miscellaneous" appropriations. This category increased 186 percent this fiscal year, and is projected to increase by another 186 percent during the next fiscal year. This spending is never documented in detail.
Again, how many Tennessee families have been able to afford almost a 13 percent increase in their spending over the past two years? It would seem just as reasonable to suggest that the fiscal problems are the product of a state government that has paid too little attention to the spending side of the budget.
It is entirely possible that the state's revenue sources are not keeping pace with its economic growth and with the demands citizens place on state government. Before they accept this position, though, voters deserve a consistent and detailed accounting of the growth in state spending and revenue sources over a specific time period.
Anyone who has sought to make sense of the spending figures that the state publishes quickly becomes frustrated at trying to understand the terms that are used. Some figures are referred to as "appropriations," some are called "actual expenditures," and still others are described as "estimated expenditures." Depending on the source used, figures for both spending and revenues can be completely different.
How are citizens to determine how much is spent on education, TennCare or roads? How much state revenue derives from taxes, and how much from the federal government? These issues could be addressed with a simple publication that presents information in an understandable format.
If, as state officials claim, Tennessee's budget problems are revenue-based, then and only then do increased taxes warrant consideration. But several issues deserve vigorous discussion.
FIRST, THERE is nothing inherently fair about an income tax. Individuals who pay $1,000 in taxes have their purchasing power reduced by that amount, whether they pay an income tax or a sales tax.
There are some appealing aspects of an income tax. It places a lesser burden on low-income taxpayers, relative to a sales tax.
The current proposal for an income tax combined with sales tax relief likely would be well received - if the legislation included three conditions.
A flat-rate income tax is preferable to a graduated tax for reasons of efficiency. Any deviations from the initial flat rate need to be approved by voters, not merely the legislature. Despite advocates' pledges to maintain the proposed income tax rate, history teaches us to expect the opposite. Finally, an increase in future taxes of any type also should have to be approved by voters.
With these additions to the tax reform proposal, along with an honest accounting of expenditures, there is some reason to believe that Tennessee voters would be willing to support an income tax.
Additionally, the combination of these changes would do much to restore lost public trust in state government officials and agencies. Continual bickering and finger pointing do little to solve fundamental problems, and only divide Tennesseans to the detriment of all.