November 21, 2002

Blogging: Important to Me, You and Democracy

So says Rocky Mountain News columnist and editorial writer Linda Seebach.

Weblogs are "going to be as important a political force as talk radio," Seebach writes. Blogs are "the Reader's Digest on Internet time, instant, interactive, uncensored access to a dazzle of events and ideas." She cites several examples of how blogs have been used to ferret out the real truth of an evolving story - from the role several sites played in debunking a history of gun ownership in America to one site's gleeful take-down of political documentary filmmaker Michael Moore. Blogs "enforce a certain level of honesty," she says.

That, incidentally, is why this weblog exists. If you want it to continue to exist, please make a donation in the Amazon tip jar.

November 18, 2002

What Dreck

Warren Neel, Gov. Don Sundquist's chief income tax cheerleader, copes with rejection in an appallingly bad piece of writing for the Memphis Commercial-Appeal. Neel is Sundquist's Commissioner of Finance & Administration.

Here's a little piece of it:

Maybe there are no answers, but sometimes a parallel to one experience offers understanding of another. As horns honked outside the Capitol, as the talk shows clamored for market share and writers of little note twisted every message, I recalled the epic research by Elizabeth Kubler-Ross that outlines five stages a person moves through as the end of life approaches. I found it informative as I reflected on the state and the tax debate that has consumed the political arena for almost four years.

The first stage is denial and isolation. An individual, when told of a terminal illness, reacts: This cannot be true. Not me. Your test and diagnosis are wrong. Similarly, some suggest the financial problems of Tennessee just don't exist. This cannot be happening, particularly now, they say. We don't have a problem. And if we do, it is a slight problem caused by overspending and the economy.

... and this from the equally pathetic ending:

We have struggled through the five stages and now embark on a new political life in Tennessee. We are not sure where we are going because we arrived at this moment through rejection of a cure, not acceptance of a new life. And in so doing, we are faced with the prospect of being seduced by the rhetoric that promises to hold us firmly in the grasp of the past century, not the century our children face.

Yeah, whatever. Mr. Neel, here's what really happened: The state of Tennessee under Gov. Sundquist's leadership increased spending faster than the state constitution allows, by massively misusing a loophole intended for emergencies. This outstripped the revenue growth produced by the tax code - and yes, there was actual revenue growth. Instead of cutting spending, the governor proposed to increase spending - and demanded an unconstitutional income tax to pay for it.

Most of the major media repeated the administration's lies about the budget and revenue, and didn't challenge the revenue forecasts and the spin that came out of your office. But a few challenged the Official Version. I did. Most ignored it when you used selective data to make the revenue problem look worse than it was. Remember the time you said to focus on sales taxes from vehicle sales because they were down, but a few months later you said to ignore them because they were up? Nice try. Most of the media fell for it. I didn't. And remember the time you used a temporary dip in franchise and excise tax revenue - caused by a change in when corporations pay the tax - to make it look as if a giant new deficit hole had appeared? Once again, the media bought it and reported your press release almost verbatim. I didn't. And I was proven right, as those two press releases I wrote for the Tennessee Institute for Public Policy show.

Most of the media didn't bother digging into old revenue data, past budgets, or past editions of the state's Comprehensive Annual Financial Reports , to fact-check the administration's claims of a crisis. Some did. I did. I had worked in the state Legislature a long time ago, and I knew where to find the data and the truth.

Turns out, the administration was propagating a lie, and your office was helping.

A few courageous papers were willing to challenge the Official Version of the story. A little paper called In Review published my work right up until the founder ran out of money. The Nashville City Paper picked up the slack, publishing my fact-laden columns for more than a year, before canceling my column after I complained about not being paid on time. Today, the City Paper is just another liberal press release-regurgitator, but a year ago it had a backbone.

The end of my City Paper column was really just the beginning of better things. This web site, along with TaxFreeTennessee.com and TNTaxRevolt.org, increasingly used the Internet to challenge the Official Version with great effectiveness. A few courageous legislators stood up and said, loudly, that the Official Version was a lie, and that our constitution matters, and it does not give the legislature the authority to enact an income tax (so said three state Supreme Court rulings). And talk radio helped spread the facts that undermined your spin. The people, empowered by knowledge, rejected the lie. And that bugs you. Because the people - who are sovereign in our system - do not want the Bigger Government you were trying to force-sell them.

That's what happened. The people aren't in denial, Mr. Neel. They're in control. And you're soon to be out of a job. It's nice how life works things out for the best.

Neel, incidentally, is an economist. I found a poem dedicated to government economists like him. Here it is.

What Good is Winning ... if You Give Away the Victory?

Surrendering after a victory and consorting with the enemy to keep you under his thumb makes no sense. Sadly, however, that's what some Republicans in the Tennessee legislature appear ready to do.

Pro-income tax legislators had their lunch eaten in the November elections. 15 of the 45 who voted for the income tax aren't coming back. One died, one killed himself, five didn't run. One ran for state Senate and got beat. Seven were defeated in the primaries or the general election. Democrat House Speaker Jimmy Naifeh barely won re-election in his solidy Democrat district. Several candidates he endorsed got beat. And the incoming crop of 21 freshman legislators is, as a group, much more conservative and anti-income tax than the legislators they replaced.

And the GOP picked up three seats in the state House, moving them to within 5 of gaining the majority.

So what is the Republican "leader" in the House about to do? Lead a few Republicans to support the pro-income tax Naifeh as speaker, instead of helping Rep. Frank Buck, a good conservative anti-income tax Democrat, defeat Naifeh.

Here's Tom Humphrey in the Sunday Knoxville News-Sentinel: "If the 45 House Republicans were united, they would need to peel off only five Democrats for the 50-member majority needed to elect a new speaker. But the Republicans are not united. Indeed, House Republican Leader Steve McDaniel has declared he will support Naifeh's re-election. At the same time, McDaniel says he is appealing to Naifeh to reverse his long-standing policy of naming only Democrats to committee chairmanships. Unlike past years, Naifeh is declining to rule out the possibility.

Yeah. So he'll promise to appoint some Republicans to some committees, get re-elected speaker, and then renege - just like he reneged on various "promises" made to various legislators during the income tax fight.

You remember Naifeh's lies to other legislators during the climactic days of the Tennessee income tax battle, don't you? Here's what happened.

EXCERPT: No matter - the press barely had time to report on Sundquist's proposal (which he announced with all the emotional fervor of a limp dish rag) than the legislature yawned and ignored him. Last night, Jimmy Soprano made one last stab to keep his income tax alive by lying to Rep. Frank Buck - Naifeh promised to bring the income tax up for a vote but instead adjourned the House after realizing he didn't have the votes. But by Wednesday afternoon, Naifeh - his credibility in tatters - was reduced to admitting his income tax plan was dead. And Gov. Sundquist, according to Channel 4 news, was forced to promise he wouldn't pursue "tax reform" again for the rest of his term.

Why would McDaniel back Naifeh? McDaniel favors the income tax. Loudly.

The good news is, McDaniel is being challenged for the GOP leadership role by Rep. Bobby Wood of Chattanooga, who says he would be very supportive of Buck for speaker and, says Humphrey, "suspects most other Republicans would, too."

November 12, 2002

Internet Sales Tax Vote

A group of states that wants to tax all online sales - not just sales by merchants that have a presence in their state - is set to vote today on a proposal to streamline sales tax collection and automate it, to make online sales taxation easier, reports today's Washington Post. The WaPo calls the states "revenue hungry." As if government is ever not hungry for more cash to spend.

The Supreme Court's 1992 Quill decision currently disallows states from enforcing their sales taxes on merchants that sell into the state but do not have a physical presence or "nexus" there. However, the court left the door open to Congress requiring such a tax. The states voting for the "Streamlined Sales Tax Project" proposal hope that, if enough states sign on to the agreement, Congress will rewrite the law and mandate such taxation across state lines.

The WaPo reports that, "Currently, 45 states and the District of Columbia levy sales taxes, with rates varying from state to state - and often from town to town. Under the Streamlined Sales Tax Project proposal, states would be required to establish uniform definitions for taxable goods and services, and maintain a single statewide tax rate for each type of product."

In other words, get ready for a hidden sales tax increase if this thing becomes law. Why? Simple. As states move to make their sales taxes uniform across all jurisdictions within the state, all items will be taxed at the rate in the highest-taxed jurisdiction. In Tennessee, the local option sales tax varies from city to city and county to county. Do you think "revenue hungry" tax collectors will implement a scheme that lowers taxes in some cities to create uniformity? Or is it more likely they'll raise tax rates where necessary to create uniformity?

Incidentally, Gov. Don Sundquist long ago made Tennessee a member of the Streamlined Sales Tax Project.

The WaPo notes that critics say the proposal would require a vast database of people's purchases, exposing them to potential privacy invasions. The story also examines whether the next Congress, with its Republican majority, will welcome the tax-raising proposal with open arms. My hope is that Republicans and Libertarians will join forces to kill this proposal for reasons of both keeping taxes low and protecting consumers' privacy.

For a full exploration of Internet sales taxation policy, click here or scroll down to read A Legion of Errors. Also, click here or scroll down to read a previous update on the Internet sales tax issue.

UPDATE: The member states of the Streamlined Sales Tax Project have adopted their plan.

Find out if your state has signed on to the Streamlined Sales Tax Project by clicking here. In Tennessee, Gov. Sundquist signed a version of the model act written by the National Conference of State Legislatures into law on May 30, 2001. The bill was sponsored by state Sen. Jerry Cooper and state Rep. Matt Kisber, two Democrats. Kisber, who voted for the proposed state income tax and then did not seek re-election, is rumored to be in line for a post - perhaps Finance Commissioner - in the incoming administration of Gov.-elect Phil Bredesen.

That model act was passed in Tennessee while most people were paying attention to the ongoing income tax debate - hence, it got little or no press coverage. But by passing that act, Gov. Sundquist set the state for higher taxes across Tennessee in any city or county where the local option sales tax is below the capped maximum of 2.75 percent. That's another part of the sorry Sundquist legacy.

November 11, 2002

A Legion of Errors

There are numerous errors of fact and apparent omissions of proper questioning in this story in today's Nashville City Paper regarding Internet sales and the state sales tax.

Below, the story, with comments of correction added in italics.

Bredesen looks for fixes to Internet, parks woes
By Skip Cauthorn

Governor-elect Phil Bredesen said recently that he’s concerned about the state’s dependence on the sales tax — 9.75 percent on the dollar in some areas — in light of dollars leaking out of the state from Internet sales. Those sales aren’t taxed if items are purchased from out-of-state locations.

“There is an Internet and mail order problem,” said Bredesen. “It’s been growing.”

Many say Tennessee’s reliance on the sales tax as its primary revenue source makes the growth in Internet sales problematic. Economists told the General Assembly last session that the state is losing roughly $300 million per year in sales taxes, and that this number is growing.

The data is based on faulty academics and pro-income tax spin - and the $300 million figure is ludicrous. The state sales tax rate at the time that figure was announced was 6 cents per dollar of spending. For the state to lose $300 million because of online sales, the people of Tennessee would have to be spending $5 billion a year online. Tennessee has approximately 5.6 million people, so that's $892 per person, or almost $4,000 per family of four.

If Tennesseans were shopping online at that rate, and if Tennesseans were shopping online at the national average, then U.S. consumers would be spending $240.8 billion a year online. Consider that the fourth quarter of the year is typically the best quarter for online shopping. Forrester Research predicts that this year U.S. consumers will spend about $20 billion online during the fourth quarter, a record. Fact is, U.S. consumers aren't spending anywhere near $240.8 billion online. "Total e-commerce sales last year were estimated at $32.6 billion, an increase of 19.3 percent from 2000," reports the Silicon Valley/San Jose Business Journal, citing U.S. Census data. There are 270 million people in the United States, give or take a few million undocumented illegals the INS hasn't bothered to track down and kick out yet. Let's do a little math. $32,600,000,000 divided by 270,000,000 people works out to $120 spent online per person in all of the year 2001. Not anywhere close to the $892-per-Tennessean figure that Gov.-elect Bredesen - he of supposedly superior intellect and business acumen - has swallowed like a 2-year-old accepting the existence of the Easter Bunny.

Chances are, Tennesseans aren't shopping online at a rate equal to or above the national average. According to the Progressive Policy Institute, a moderate Democrat think tank in Washington DC, only about 60% of U.S. households are wired.

The most wired city in Tennessee is Nashville, according to Nielsen//NetRatings, as reported in mid-2001. Only 53.2 percent of the homes had Internet access - slightly more than half. Tennessee as a whole is less wired. A report from the Tennessee Regulatory Authority in June 2000 said this:

Overall, the TRA’s analysis found that Tennessee’s digital divide is even more widespread than the national divide - with only 37.5 percent of Tennesseans owning personal computers, as compared to 42.1 percent nationally. The report further shows that even fewer Tennesseans are connected to the Internet, despite the fact that computer ownership statewide has doubled since 1994.

It also said this: Tennesseans are less likely to own computers and to be connected to the Internet than the national average.

And this: Computer penetration in Tennessee’s urban areas exceeds rural areas in every income category, and only one-third of the state’s rural residents own computers.

The TRA also said 37 percent of Tennesseans own or have access to a computer, compared to 48 percent nationally. Data from the National Telecommunications and Information Administration backs up the general picture of Tennessee's population being less "on-line" that the national average.

But per capita income in Tennessee $26,988) is well below the national average ($30,472) - ranking 34th among the states in 2001 - making it highly unlikely Tennesseans spend online at the same rate as consumers do nationally.

So, being generous, let's imagine that half of all Tennesseans are now shopping online. That means they have to be spending, on average, approximately $1,800 per person (or $7,200 per family of four) per year over the Internet, an absurdly high number. On the other hand, if the Census data is correct, and the average American resident spent $120 online in 2001, and we extrapolate that number to Tennessee, then the state lost just $40.3 million in sales taxes due to online shopping in 2001 - nowhere near the $300 million-plus scare tactic that is being tossed around. And that's only if you accept the notion that all of those sales would have been taxable if they took place in Tennessee, which is dubious at best.

At this point in reporting the story, I'd have asked Bredesen if he was aware of a study showing that Internet sales are having a negligible impact on state sales tax collections - specifically, this one from 1998, just four years ago (and in the middle of the ecommerce boom), which pointed out the following:

"An estimate of the sales and use tax not collected in 1998 from the increase in remote sales due to the Internet is less than $170 million, or only one-tenth of one percent of total state and local government sales and use tax collections. An estimated 80 percent of current ecommerce is business-to-business sales that are either not subject to sales and use taxes or are effectively subject to use tax payments by in-state business purchasers. An estimated 63 percent of current ecommerce business-to-consumer sales are intangible services, such as travel and financial services, or exempt products, such as groceries and prescription drugs, which generally are not subject to state and local sales and use taxes." - from a report by Robert J. Cline and Thomas S. Neubig, Ernst & Young Economics Consulting and Quantitative Analysis.

Incidentally, the report that purports to show Tennessee is losing more than $300 million in sales taxes due to e-commerce was commissioned by the Salt Lake City-based Institute for State Studies, a public policy group connected with the National Governors' Association, both of which have endorsed taxing online sales. And do you know who wrote the report? University of Tennessee economist Dr. Bill Fox, a longtime cheerleader for higher taxes in general and a state income tax for Tennessee in particular.

The City Paper continues:

However, states are basically waiting on action by Congress, which currently has a ban on taxing the Internet across state lines.

Not true. Congress did not ban Internet sales taxes. The Commerce Clause of the United States Constitution bans them, a position upheld by the U.S. Supreme Court in the 1992 Quill decision. Basically, the court said that states can not levy their sales taxes on merchants in other states that don't have a physical presence in the state that wants to levy the tax.

Many opponents of such a tax say the Internet’s burgeoning growth must be allowed to mature and that taxation could possibly harm the relatively new market.

I'd agree with that.

“[Congress] is going to have to deal with this,” said Bredesen. “For every car bought in state there are 50 computers bought from out of state.”

I'd have asked the governor-elect his source for that stat. If he couldn't provide one, I'd have excluded the claim from my story -r quoted it and then reported that Bredesen couldn't say where the data came from. My guess is, the claim is just as dubious as the "more than $300 million a year in lost revenue" malarkey.

Sadly, the City Paper is falling well short of its goal of providing a well-written and balanced alternative to the liberal Tennessean.

November 6, 2002

Was I Right?

Was I Right?
I went back and re-read a column I wrote 15 months ago about Phil Bredesen and the income tax, a column that was wrongly interpreted as a near-endorsement of Democrat Bredesen over Republican Van Hilleary in the Tennessee governor's race.

It was nothing of the kind. It was a warning to conservatives that Bredesen had the rhetoric right on the income tax - and it could propel him to a victory they didn't want.

I wrote: Bredesen said the state’s heavy dependence on the sales tax inevitably causes revenue growth that rises and falls more or less in sync with economic growth and economic slowdowns. When revenue growth slows, he said, "It's fair to ask the governor of our state to manage through the process" and "tighten up."

That diagnosis was right on target, and easily understandable by the average voter. At the time, Hilleary was saying he was against the income tax unless voters approved one in a constitutional convention - which made it possible for some to suggest, wrongly, that Hilleary secretly supported just such a constitutional amendment. While Hilleary discussed constitutional intricacies, Bredesen was saying, in effect, "the guvmint's gotta live with what it's got."

His track record of serial tax-raising and spending, notwithstanding.

But that was then. This is now. Bredesen is our next governor.

Incidentally, out on the campaign trail he said he opposed Hilleary's plan to roll back the 1-cent sales tax increase the Legislature passed last July. But 15 months ago, I reported in my column, Bredesen told the newsletter Tennessee Politics that the no-new-taxes budget the General Assembly passed July 12, 2001, was sufficient and the legislature should pass another one in 2002. They didn't. They passed a tax increase that will cost Tennessee taxpayers $933 billion this fiscal year and more than $ billion next year... and the year after that, ad nauseum. Bredesen favors the government keeping every dime and spending it.

That's Bredesen consistency for you. He's says he's not for tax increases, but he'll be glad to spend them. If, two years from now, Naifeh & Co. pass an income tax to deal with equalizing teacher pay "for the children," I guarantee you Phil Bredesen will either sign it or allow it to become law without his signature.

Blurring Reality

The Tennessean attempts to blur the impact of the income tax on state legislative races by looking at how "backers of taxes" fared last night, tossing votes for the sales tax increase into the mix to make it appear as if the income tax was less of a factor than it really was.

Says the paper: If members of the state House of Representatives who voted for new taxes earlier this year feared a voter backlash, it didn't materialize for most of them Tuesday night. Across the state, 38 incumbents who voted for either an income tax or a sales tax increase faced opposition. Four had clearly lost late Tuesday night. The rest won re-election.

Okay. Here's the point: Some anti-income tax legislators voted for the sales tax increase in order to get the budget passed and bring the legislative session to an end without an income tax.

TaxFreeTennessee.com has this roundup of what happened to legislators who voted for the income tax:

Of the 45 members of the Tennessee House of Representatives who voted for the Naifeh income tax bill, only 30 are returning to the House of Representatives in January.

Two of the 15 who are not returning have died, and 5 did not seek re-election. One, Bobby Sands of (D-Columbia) ran for the State Senate, and was defeated by anti-tax Republican Bill Ketron.

Seven of the pro-tax legislators ran for re-election and were defeated. Republicans Ralph Cole and Zane Whitson were defeated in their primaries by Jerome Cochran and David Hawks. Cole still would not take no for an answer, and mounted a write-in campaign against Cochran in the general election, only to be rejected by the voters in the 4th District for the second time this year. In District 70, John White was defeated in the Democratic primary by former State Representative Calvin Moore. Moore, who had indicated a willingness to support the income tax when he served in the legislature before, was in turn defeated by Dr. Joe Hensley, who got the Republican nomination after a write-in campaign in the primary on an anti-tax platform.

In the general election, voters also rejected pro-tax Republicans Ronnie Davis (Dist. 11) and Stancil Ford (Dist. 10), and pro-tax Democrats Dotle "Butch" Lewis, Jr. (Dist. 47) and Paul E. Phelan (Dist. 79).

Of the 8 Republicans in the House who voted for the income tax, only three were returned by the voters: Steve McDanial, Robert Patton and Raymond Walker. This significantly increases the likelihood that Steve McDaniel will not be re-elected to his position as House Republican Leader.

There is also speculation that Representative Frank Buck (D-Dowelltown) may challenge Jimmy Naifeh (D-Covington) for the position of Speaker of the House. Naifeh's position as speaker could be jeopardized by the loss of ten pro-tax Democrats in his caucus. Buck, also a Demcorat, may find his challenge to Naifeh strengthened by an alliance of anti-income tax Democrats with the newly strenghtened anti-tax Republican caucus.

Go to TaxFreeTennessee.com for a chart listing details.

November 5, 2002

Disintermediation Bites Back

Darwin magazine suggests that Orbitz, the online airfare merchant owned by a consortium of airlines, is sowing the seeds of its own destruction.

Orbitz is a shining example of two of the consequences that Internet gurus used to make good money blathering on about. The website has eliminated one expensive middleman (the travel agents), and has another (reservations systems) in its crosshairs. And it has made an incomprehensible pricing system transparent (if not comprehensible) with the end result of reducing airline fares, which have become the commodity that they always looked like they should have been." But therein lies the problem: What the gurus didn't tell us was that the benefits of shooting the middleman could easily be washed out by the empowerment of the customer once a product had been reduced to a commodity.

November 4, 2002

TABOR Update

Voters in Colorado get to vote on proposed tax increases. Here's an example from the Denver Post, Oct. 31, 2002:

Adams County residents will also decide a variety of ballot issues: The county is asking that it be allowed to keep excess revenue under the Taxpayer's Bill of Rights, or TABOR amendment, for funding services, projects and operations. Residents will decide whether to increase their property taxes to raise $5.8 million annually to pay for three new library branches, renovation and expansion of another three branches, and expanded materials and technology.

Federal Heights is asking for a 1 percent sales tax increase that would raise $1.55 million for public works projects, maintenance and services. Adams County School District 1 is asking voters to override TABOR. Adams County School District 14 wants voters to approve a property tax increase to raise up to $2.5 million annually to go toward music, athletics and art programs and computer upgrades. Adams County School District 50 wants a tax increase of $5.95 million annually to fund programs to improve reading, writing and math as well as hire and retain teachers.

By the way, Van Hilleary wants to write a similar Taxpayer's Bill of Rights provision into Tennessee's constitution. Tax-and-spend Democrat Phil Bredesen is opposed to it - even though it helped Colorado enjoy fiscal stability and avoid serious fiscal problems during the recession - and fostered a decade of rapid economic growth. But, then, Bredesen is a "competent manager" who thinks the income tax would be good for Tennessee's economy.