July 1, 2004

Tennessee Tax Study Commission Member Pushes Income Tax

A member of the Tennessee Tax Structure Study Commission has written an op-ed in favor of a state income tax (though he uses buzzwords and euphemisms). Grover L. Porter, a retired CPA, makes the same tired negative claims about the current tax structure, but fails to provide evidence or data for his claims and ignores data and evidence that contradicts him. Instead, he makes a personal attack on a radio talk show host, and then focuses the rest of his commentary on the state's education system. His argument seems to be that Tennessee needs to improve its public and higher education systems, therefore Tennessee needs "tax reform," i.e., an income tax. But one does not logically follow the other.

As to education, any number of comparisons of education spending across the various states has proven that the level of spending per student does not correlate to education success. One study, for example, showed that Utah spends the least and Washington D.C. the most on public education per-student, yet the students in Utah are far better educated.

Porter also claims that the lack of an income tax (he calls it our "antiquated" tax structure) is keeping big companies from moving here. If that's true, then why in the last year or so have several large corporations moved to Tennessee? And why for years has the state's Department of Economic Development touted the lack of a state income tax as a reason for companies to move here? Answer: the state's lack of an income tax is a net positive for economic development.

As to the tax structure, Porter ignores the state's rapidly growing revenue surplus, and ignores the data from the last several years showing Tennessee's sales tax delivered faster revenue growth than did most state income taxes. The simple fact is, had Tennessee adopted the kind of tax reform Porter advocates - lowering the sales tax and replacing the lost revenue with a progressive income tax - when it was first recommended five years ago, Tennessee's budget crises of the last few years would have been worse, with larger deficits and deeper spending cuts and calls for larger tax increases.

The data also shows that the Tennessee legislature has been increasing spending faster than is warranted by inflation and population growth, and has routinely flouted the state constitution's cap on the year-over-year growth of spending of state tax dollars, a cap tied to the growth of the state's economy as measured by the growth of personal income. It's a measure chosen specifically to keep spending growth within range of the people's ability to pay the bill.

Two years ago, the legislature raised the state sales tax by a penny, increasing revenue by about $1 billion. Not ironically, that's almost the same total amount by which the legislature had busted the spending cap during the previous few years.

Tennessee's budget crises were always as the anti-income side claimed: driven by out-of-control spending, not an inadequate tax structure. Had Tennessee's legislature lived within the constitutional spending cap since it was enacted in 1978, instead of exceeding the cap 12 out of the last 20 years by a total of more than $3 billion, Tennessee government today would be leaner and more efficient, taxes would be lower, the state would be even more attractive to business, the state's economy would be healthier, and Tennessee would be sitting on an annual revenue surplus in excess of $1 billion.

Sadly, as Tim Chavez documented in a recent Tennesseean commentary that - unlike Porter's - relied on facts and served up real data instead of an emotional/rhetorical appeal, the legislature this past session, with the full support of Gov. Phil Bredesen, returned to its cap-exceeding ways, putting Tennessee right back on the path to a budget crisis the next time the economy turns a little sluggish.

They never learn. And things like Porter's fact-free op-ed don't help.

For more Tennessee tax and budget truth and facts, spend some time in my Tennessee Budget & Tax Policy archive. And if you really want to know how Tennessee spent itself into a budget crisis in the 1990s - and the only real way to prevent it from happening again - read this white paper. (PDF, 17 pages)