July 2, 2004

A Taxing Tale

Rob Ikard, Tennessee State Director for the National Federation of Independent Business, emailed me regarding the oped by Tennessee Tax Structure Study Commission member Grover L. Porter which I wrote about yesterday - the op-ed that urged Tennessee adopt "tax reform," a euphemism known statewide to mean "income tax."

I thought I would relate to you my experience with the Tax Study Commission. About a year ago, at their invitation, I testified to the Commission on the small business perspective on tax reform. I delivered what I thought was a well-thought-out and well-documented analysis of small business concerns about taxes, the status of Tennessee's tax system, and recommendations for future reforms.

I relied heavily on materials from the highly regarded NFIB Research Foundation; and from the Tax Foundation's ranking of state tax systems for "business friendliness." We basically concluded that Tennessee's system was adequate (we're in the top 10 for business friendliness); and we offered some reasons why an income tax would be harmful for small businesses.

My respectful presentation was met with many rolled eyes. I was the object of a harangue from Sen. Bob Rochelle, who attacked the methodology of the Tax Foundation's study, and disparaged my organization as a bunch of greedy rabble rousers. A City Paper article on the encounter quotes two members of the commission, who pretty much give away their predisposition toward reform: "The commission's perspective on taxation is a much more long-term focus...We see [responsible] taxation as married to economic development." And, "I don't have a battle with Rob or the NFIB...but we've had the same system for a long time and it needs to be revisited."

It must be stated that taxes and revenue represent only half of the equation for state fiscal policy. The other half is state spending. One of the criteria that the legislature considered during the previous debates was "adequacy," meaning, 'Does the system generate enough revenue to fund everything the state wants to do?'." No tax structure that this body could ever recommend would provide enough "adequacy" if state government is not willing to exercise fiscal discipline, to live within its means, to conserve for when times are bad. These are the rules that small business owners have to live by. State government must as well, or your efforts will have been in vain.