 | ||||||||||||
| ||||||||||||
|
« Government Blogs | Main | Cow Patty Power! » January 7, 2007Smoke 'Em When You Got 'Em Where You Want 'Em
The state is collecting more taxes than it needs. Republicans last year proposed putting that surplus back in people's pockets by gradually taking the sales tax off food.Kerr is right about the differing views on how to "pay" for cutting the sales tax. Republicans, generally, want to do it by using surplus tax revenues - which the state piles up to the tune of hundreds of millions of dollars almost every fiscal year - while Democrats want to "pay" for it by raising other taxes. But here is where Kerr is wrong: Democrats still control the agenda of the legislature. They have a majority in the House, and unless Democrats in the state Senate oust Lt. Gov. John Wilder later this week, they still control the Senate committee chairmanships that are key to passing tax legislation. If Jimmy Naifeh and the Democrats really wanted to pass legislation to remove the sales tax from food and replace the revenue by hiking cigarette taxes, they can do it without a single Republican vote. In the Senate, similar legislation could be passed with just one Republican vote. And Republicans ought to force the Democrats to do so. While I favor using all surplus revenues to reduce tax rates, starting with the sales tax on food, it wouldn't be so bad if the Democrats' idea of cutting the food tax but raising the cigarette tax to "pay" for it became law. Here's why: First, removing the sales tax on food is the single biggest populist argument for an income tax in the arsenal of the liberal special interest groups, the liberal Democratic politicians and the Tennessee Democratic Party, all of which still harbor a desire for a state income tax. End the food tax and you gut the heart of their argument. Second, in the next 2-6 years the Republicans will take control of both houses of the state legislature with solid majorities. It is demographically inevitable - Republican-leaning areas of the state are growing faster than Democrat-leaning areas of the state. So, Republican legislators, let the Democrats cut the food tax by raising the cigarette tax. In fact, force them to do it: Call press conferences, issue press releases, and write op-eds for your local newspapers that demand the Democrats actually follow-through on their proposals to cut the food tax. They don't really want to do it - Democrats think they've found a clever way to appear to be for lowing the sales tax on food without actually doing it. As former Republican state senator and gubernatorial candidate Jim Bryson explained in a comment posted on my blog last week... Naifeh simply wants to be "for" reducing the sales tax on food while being "frustrated that it can't be done." Its an old political trick often used to stop a popular issue.The fiscal year 2005-06 ended with a tax revenue surplus of $411.2 million, yet the Bredesen administration fought any effort to reduce the sales tax on food even by a small amount. Republicans: its time for a little political jujitsu. The good news: You have the Democrats right where you want them. The big focus by Republican legislators during the session last year and and by Sen. Bryson during the gubernatorial campaign on proposals to use the surplus to cut the food sales tax has forced Democrats to play catch up on the issue. Five years ago, Democrats were pushing a state income tax to try to increase government revenue by more than $1 billion; now they're pushing "revenue neutral" tax cuts. Sure, they want to raise another tax to "pay" for it, but at least they aren't proposing to "pay" for it with a new income tax. They've moved from seeking revenue-raising "tax reform" to calling for revenue-neutral tax reform. So put them on the spot, Republicans. Make the Democrats bring legislation to the floor to end the sales tax on food. They really don't want to. Make them do it. And then vote for it unanimously. Then, when the GOP takes control of the legislature, use future surplus revenue to reduce other taxes - I'd suggest trimming a penny off the overall sales tax rate first, then lowering the state's high business (franchise & excise) taxes. The long-term result will be what Republicans generally favor and Democrats generally abhor: lower taxes, and smaller government budgets. The result also would be a better economic climate in the state, which could "pay for" additional tax cuts via stronger economic growth generating more tax revenue. Bottom line: Force the Democrats to cut the food tax now, even if the short-term cost is raising the cigarette tax, and you drive yet another nail in the coffin that holds the state income tax while also laying the foundation for using future surpluses to begin ratcheting the state's overall tax burden downward. UPDATE: A reader asks in the comments below, "How does the revenue that should be, but isn't, going to roads factor into this?" The reader is correct - the Bredesen administration has "balanced" the state budget by robbing Peter to pay Paul - diverting gas-tax revenue intended for roads into the general fund instead, insisting doing so even in the face of a state revenue surplus that topped $400 million. That's wrong, fiscally shortsighted, and sets Tennessee up for worse traffic and fiscal problems down the, uh, road. A prerequisite of any Republican participation in a plan to lower the sales tax on food by raising the sales tax on groceries should be restoring every penny of gas tax revenue to its original intended purpose: financing the transportation infrastructure. Posted in Tennessee Government News
Comments
Bill: How does the revenue that should be, but isn't, going to roads factor into this? My understanding, perhaps incorrect, is that there are designated revenues that are supposed to go to highway building/renovation that are being placed in the general fund (I think I heard that, or something like that, on Phil Valentine's radio show). How much money isn't going there that should be? As residents of Franklin, you and I experience the need for better roadways almost daily - finishing the Mack Hatcher loop would be a good start. Any thoughts? Posted by: Paul at January 7, 2007 10:27 AMYou're right. I respond in an update to the main post. Scroll up! Posted by: Bill Hobbs at January 7, 2007 10:38 AMHere's a way to start the process of eliminating the sales tax on food with minimal budget impact - a monthly sales tax holiday like we do for school supplies each August. See this. Posted by: Mike Faulk at January 7, 2007 5:29 PMPardon me, but I think part of the problem in the state of TN is the blending of the parties, and the wording of Bipartisanship. Until strong candidates from either party can stand up for their core party belief and run on that ticket instead of the one they think will win, the blending of issues in TN such as grocery tax will continue to be muddled. Until there is some separation of the parties and politicians that can stand firmly for an issue the people of TN will continue to come in second or even third on the list of importance. Removing or reducing the grocery tax benefits those in the state that buy groceries and not those who are wealthy enough to eat out all the time. Removing or reducing the grocery tax helps the hard working people of Tennessee, when will we become important over the giving of another tax break, or 100 year no or little tax incentive to another company in the state? Posted by: dk2 at January 7, 2007 9:17 PMWith all due respect to Bill Hobbs I must disagree. I realize that it politically popular to reduce sales tax on food, but sales taxes on food is the most reliable and dependable taxes in existence. The federal income tax is probably the most unfair tax. The top 50% of wage earners pay 96% of the tax revenues. Taxes are even more out of balance with franchise and excise taxes. The Tennessee Hall tax primarily preys on the elderly. The Georgia income tax generates a lot of revenue in good years. But, when the economy goes down the Georgia income tax plummets. The sales tax on food is the most reliable and dependable source of tax revenue in existence. It is a broad based tax that applies to everyone. Sales tax revenue on food is like a very dependable bond fund. When government needs to live month to month and year to year with only 5% of its $27 billion yearly budget in a rainy fund then state government can't afford to depend on a wildly fluctuating tax source. The state sales tax on food gets a bad rap. It is the best source of revenue in existence. It is dependable, and it is a broad based tax that applies to everyone. Posted by: Chris at January 8, 2007 12:21 AMChris, The sales tax on food is a small part overall of the state's revenue - probably less than five percent - such that the stability you talk about is not much of a consequence. And as long as we levy the sales tax on food, the pro-income tax folks can use it to argue for "tax reform." We can do away with the sales tax on food without having a state income tax. Posted by: Bill Hobbs at January 8, 2007 1:38 AMWe agree that taxes should be reduced. I still believe that you and other fiscal conservatives are getting sucked into the political fad of wanting to repeal a good tax instead of concentrating on the really bad taxes. In the overall scheme of things there are several other taxes that are causing much more problems. Apparently, your primary reason for wanting to repeal the sales tax on food is that your political opponents want to do it so you want to give it to them. Lets look at the other taxes first. 1. Franchise and Excise taxes. Tennessee has a far higher franchise and excise tax rate than surrounding states. These taxes are essentially property taxes on machinery and assets. This tax unfairly and disproportionately targets small businessmen and larger employers. It should be cut. 2. The Hall Income Tax. This is an income tax. This Tennessee tax unfairly and disproportionately targets the elderly and investors. It should be repealed or cut. 3. The tobacco tax. I hate smoking. I forbid it in my commercial properties and do not allow it with my employees at work. But, I hate the thought of government threatening an entire industry to pay up or else. Now, Tennessee makes far more on the sale of a pack of tobacco than the tobacco companies. Tennessee is addicted to the revenues more than the tobacco companies. A legal private company is required to pay extortion money through a lawsuit settlement to Tennessee and required to pay even more of its profits through so called sin taxes or else government will do bad things to the industry. If the industry is that bad then shut it down. But, something is wrong with government saying, "your industry is bad; so you better share the profits with us." This tax should be cut, not increased. There are several other taxes which are equally bad, but I don't have to explain all of them. Instead, look at the sales tax. All taxes are evil, so to speak. But, they are a necessary evil. We should look for broad based taxes that apply to everyone without targeting one industry (tobacco), small businesses and employers (franchise and excise taxes) or people group such as the elderly and investors (the Hall Tax). The sales tax does just that. It is a large broad based tax. It has a very high compliance rate unlike the Hall Tax, Franchise Taxes or Excise Taxes. That is to say, businesses actually collect the tax and voluntarily pay it to state government. The sales tax applies to everyone thereby giving everyone a stake in state government. If everyone pays it then everyone wants government to be efficient and effective. Sales taxes provide a steady revenue stream for state government in good times and in poor economic times, unlike the other taxes which tend to plummit in bad times. The primary argument for repealing this tax is that pro-income tax supporters want it repealed so lets give them what they want. I respectfully disagree. Posted by: Chris Clem at January 8, 2007 6:32 AMChris, I agree with you re the franchise tax, etc., but you are wrong to think that my "primary argument" for repealing the sales tax is that pro-income tax supporters want it repealed so lets give them what they want." First, I don't want the sales tax repealed - I want the sales tax on food purchased at the grocery repealed. Big difference. I prefer the sales tax over the income tax, but do recognize that people at the low end of the income scale spend a larger fraction of their income on food than do people higher up on the income scale and I believe that making people pay tax in order to eat just isn't right. I grew up in Pennsylvania. We had a 6-percent state sales tax, but no tax on food or, believe it or not, clothing. Tennessee's sales tax revenue is mostly NOT from the sale of groceries - sales tax on food represents about 5 percent of the state's overall revenue, or only about 2 percent of the overall state budget. The state can do without that revenue - and lowering or repealing the state sales tax on food would be a tax cut FOR EVERYONE IN TENNESSEE. The question is, how do we cut that tax? In the short term, it appears the price of removing the sales tax from groceries is letting the Dems raise the tax on cigarettes. At least that is the offer that Naifeh just implied, believing that it was a non-starter with Republicans. While I would prefer the legislature last year had just used the surplus to axe the food tax, what I'm arguing for now is for Republicans to leverage the current political reality to repeal the food tax. Doing so would do a number of things: 1. It would lower taxes for everyone in Tennessee. That's a good thing. 2. It would make border-county groceries more popular with shoppers who live across the state line - boosting local tax revenue as the local-option sales tax would remain on food. That's a good thing. 3. And it would remove the biggest argument weapon wielded by the pro-income tax side, lowering the chance of Tennessee ever having a state income tax. That's a good thing. The trade-off - a higher tax on an optional activity, smoking - I can live with that in the short term. Long-term, when the GOP takes the majority in the House, I would urge using future surpluses to reduce other taxes, starting with the F&E tax. What I'm saying is, rather than argue now to use surplus revenue to cut the tax, just get the tax cut - and get the three good results of doing so that I listed above - and later revisit the taxes/surplus issue and use surpluses to cut OTHER taxes. Posted by: Bill Hobbs at January 8, 2007 7:15 AMGov. Phil Bredesen wants the grocery tax money spend on a new program AND needs even more money for this mystery program. This is the chance for Republicans to step up to the plate. Pass a reduction in the food tax and defeat any new programs until Bredesen actually fixes TENNCARE. Does anyone even remember that Bredesen won the election five years ago claiming to know how to fix TENNCARE? Is that program fixed yet?? Posted by: RWBlack at January 12, 2007 6:33 AMWhat Bredesen, Naifeh, and the good ole boys in the smoked filed back rooms really want is a state income tax plus high sales taxes. They've never seen anything they don't want to tax and tax it higher. If you look at states that have income taxes, they've usually wound up going back to increase their sales taxes because they never have enough taxes. Plus, the endless taxes hurts their state economies leading to further diminished revenuing. Thank goodness for the Republicans taking control of the State Sentate and clearing out those good ole boy, Democratic, smoke-filled rooms. There's no chance of an income tax now. Posted by: DG at January 17, 2007 11:46 PMPost a comment
Comments Policy: Your comment is subject to deletion if it is off-topic or includes foul language or personal attack. Readers, please email me if you find comments that include egregious violations of this policy. Comments may not post immediately - do not post twice!
|
|||||||||||
Tennessean columnist and 