December 31, 2004

The Fix Was In

The "unbiased" Tennessee Tax Structure Study Commission rammed through its proposal for a state income tax and refused to allow any other reform proposals come to a vote, according to the just-published minority report from the Commission.

Three people on a blue-ribbon panel that studied Tennessee's tax system say they didn't get a chance to vote on anything but a state income tax. "It wasn't a very democratic process," said Julius Johnson, chief administrative officer of the Tennessee Farm Bureau. Earlier this month, Johnson was part of the minority that voted against an income-tax plan recommended by the Tennessee Tax Structure Study Commission.

A strongly worded minority report released yesterday as part of the Commission's 120-page Final Report (PDF file) said the process was rushed and members did not get a chance to vote on other alternatives, such as a statewide property tax or a higher tax on all registered vehicles. The report was signed by Johnson and two members who abstained during the vote, Nashville lawyer Dan Haskell and Knoxville accountant Will Pugh.

"I hate to be critical of tremendous individuals; however, the final proposal was somewhat ruthlessly pushed upon us without allowing for amendments or alternatives or so forth," Johnson said.

At the November meeting of the Commission, we believe the general agreement reached was that the Commission would file a report that recommended as follows:

1. the State sales tax be reduced to 6% for all items;
2. the State franchise tax be cut in half and real and tangible personal property be removed from the franchise tax base,
3. local governments be held harmless for the reduction in sales tax; and
4. three separate options would be offered for replacing the money lost due to the reductions in the sales and franchise taxes above. Those options would be

(a) a graduated income tax (similar to that ultimately included in the Motion approved on the 9th);
(b) a low State real property tax; or Page 93 of 118
(c) a tax on all registered vehicles, etc., which might include an exemption for vehicles beneath a certain value.

What actually happened during the Commission’s last meeting on the 13th was that the proposal subcommittee recommended that the reduction in sales tax be enlarged by reducing the sales tax on grocery food to 4%, thereby increasing the amount of revenue that would need to be replaced. Secondly, the recommendation proposed to repeal the Hall income tax which also increased the amount of revenue which would have to be replaced. Thereafter, rather than offering three alternative methods of funding the enlarged shortfall, it was proposed that only the income tax be offered as an alternative, at least partly because it is the only one of the alternatives that could raise enough money to cover the enlarged shortfall. In addition, the alternatives involving a low State property tax and a modest per-vehicle fee, instead of being stand alone options, were combined in a single proposal which is so obviously unacceptable as to be unrealistic.