April 5, 2004

Thoughts on Tennessee Politics and Taxes

I received an interesting question via email from a reader regarding the proposal for a "Taxpayers Bill of Rights" in Tennessee to cap state tax rates and the state spending-growth rate and give voters a say in raising taxes, new taxes and extra spending. Here it is, followed by my thoughts...

I know how bad the word tax is to all of us. I also know that a very big fight was waged over the Tennessee attempt at an income tax. IF a TABOR were to be enacted, would it be your thought that any consideration of an income tax be not in the mix for total tax reform? The Colorado package of taxes, top to bottom, works so well and is so fair, I don't know how it would work if the income tax were not in their mix. The revenue stream would have to be essentially like theirs. Property taxes, auto license fees, income taxes, exemption for pension income (Currently some $24,000), the whole gamut would have to be done. Incidentally, the State Sales tax there begins at only .029 . This is a result of TABOR as well. Your thoughts please.

Tom G.
Arlington, TN

But TaBOR does not require an income tax to function - indeed, if the TaBOR proposed by state Sen. Jim Bryson had been in place since 1978 instead of the current much-weaker spending cap in the state constitution, $3.7 billion would have been left in Tennessee taxpayers' pockets instead of spent by state government, as state spending would have been reduce slightly to bring it into line with population growth and inflation.

Nor does the proposed Taxpayers Bill of Rights preclude an income tax. In fact, it would offer income tax supporters a new route to passing an income tax.

The proposed TaBOR is separate from the tax structure in that it would be in place no matter what the tax structure was. But tax reformers, including income tax supporters, could use TaBOR. Under TaBOR, new taxes would have to be voted on by the people (the current amended version of TaBOR requires no referendum if the tax reform is revenue neutral, a weakness I've previously discussed.)

That means income tax supporters could ask legislators to pass their plan in order to put it on a referendum ballot. I suspect there are many legislators who would not vote to create an income tax who might vote to put a proposal on the ballot for voters to decide.

And passing an income tax via a TaBOR referendum would guarantee a new income tax was constitutional because TaBOR would create a constitutional channel for creating such a tax. (The income tax proposed in recent years by then-Gov. Don Sundquist, then-state Sen. Robert Rochelle and current House Speaker Jimmy Naifeh was not constitutional and in fact violated three unanimous State Supreme Court rulings against such a tax.

I have in the past proposed that a TaBOR crafted by conservatives and a tax reform package crafted by liberals both be put on the ballot as constitutional amendments side by side on the same ballot. Read these two columns: Finding common ground on taxes, and Tennessee should consider taxpayer rights bill

The fact is, I could design a tax code for Tennessee that would be, in my estimation, fairer than the one we have now and better for the state's economy, and it would include an income tax but no state sales tax.

But I don't support reforming the mix of taxes until we put a TaBOR cap in place. Politically, I think that's how TaBOR supporters get a Taxpayers Bill of Rights passed. We hold firm against any tax reform until we get TaBOR, and work to defeat pro-income tax legislators like Naifeh and reward anti-income tax legislators - but simultaneously communicate to liberals how TaBOR actually enables the pro-income tax side of the debate to take their plan to the public, and how it makes some conservatives less nervous about an income tax, and less likely to protest and work hard against it because we would know that the tax rate and the spending rate are capped and under the peoples' control.

I said pretty much that in my March 8 essay, Five Reasons Liberals Should Support the Taxpayers Bill of Rights.