Press Release from Tennesseans for Fair Taxation, Sept. 30, 2010:
Concerned Voters Convene to Discuss State Budget Crisis
Tennessee’s budget is teetering on the edge of a cliff, and further cuts and layoffs are not the solution – Tennessee needs an option that give most residents a tax cut while still raising needed revenue, a statewide audience of concerned voters learned Sept. 25. The group convened at Tennesseans for Fair Taxation’s Annual Meeting to express concerns about the state’s recurring budget shortfalls and learn about solutions that would provide a tax cut for two-thirds of Tennesseans while still providing the state with $1 billion in revenue.
TFT is a statewide non-profit seeking to create a more fair and progressive tax structure that ensures adequate revenues for the benefit of all Tennesseans. TFT Board Chair Dick Williams says those elected to office this November will be faced with a dire state budget forecast. “We’ve already seen college tuition rise because of lack of funding, along with state employee layoffs and drastic program cuts. But this is not the worst of it — many programs and jobs were saved this year because of federal stimulus funds and the use of non-recurring funds. These options will not be available to our next governor in preparing the budget. We must look to new revenue options if Tennessee is ever going to catch up with the rest of the nation in key quality-of-life issues.”
Vital programs that received one-time funding in 2010-11 and potentially face cuts next year include Early Childhood Education, Safe Schools, Child Care Subsidy for At-Risk Families, and Minority Health Initiatives, among dozens of others. “These programs provide direct services to those who need them, but they also contribute to the overall well-being of all residents of our state,” Williams says. “Public education, public safety, and the future economic stability of our state are all hurt when the budget isn’t sufficient to invest in our society’s needs.”
Revenue for Tennessee’s budget is overly reliant on the sales tax, and Williams says this worsens the income gap and the current recession. “Working-class families are already hurting with a high unemployment rate and service cuts just when they need them the most. In addition, Tennessee levies the highest sales tax in the nation and also taxes food – this means low- and middle-income families are paying up to 4 times more taxes than the top wage earners as a percentage of their income.”
While the nation’s attention is turned to federal legislation on extending the Bush tax cuts for the wealthy, TFT Executive Director Elizabeth Wright says the same issue has been lying dormant in Tennessee for far too long.
“For years, Tennessee has been taxing the poor at a much higher rate than the wealthy,” Wright says. “Maid services, dance lessons and private school tuition are exempt from the sales tax, while the basic necessities of life like food and diapers are taxed at some of the highest rates in the country. Not only is this unfair, but because of inflation, the sales tax revenue will never keep up with investing in the needs of our residents, which is why Tennessee sees perpetual budget shortfalls and is ranked near the top nationally in violent crime, infant mortality rates, and poverty indices.”
Two-thirds of Tennesseans would receive a tax cut and $1 billion in additional revenue would be raised under a bill introduced by Rep. Johnnie Turner and Sen. Reginald Tate. The Tax Cut and Job Creation Act would eliminate the tax on food, reduce the general sales tax, and introduce a tax on personal income with generous exemptions and higher rates for the wealthy. “This bill does not ask wealthier Tennesseans to pay more in taxes, it simply asks them to pay what lower income residents are already paying in taxes,” Wright says. “Tax modernization is vital to our state’s economic recovery and viability in the future.”
Small businesses are also a driving force of the state economy and a key component to boosting job creation during the current recession. However, small businesses struggle to succeed under Tennessee’s current tax structure. A reduction in the sales tax would increase consumer spending by lower- and middle-income families who are pinching pennies in the ongoing recession. Research by experts at the Center on Budget and Policy Priorities and the Economic Policy Institute shows that people with higher incomes typically put additional income into savings rather than spend it — a move that does nothing to boost the economy here and now.
“We know that small businesses are the key to economic recovery. Our local businesses rely on Tennessee consumers, and most Tennesseans can’t afford to spend an extra penny right now,” Williams says. “Our high sales tax pushes consumers to shop online and in border states to avoid the extra cost, and this hurts small businesses who we rely on for employment and reinvestment in our communities.”
He adds that Tennessee’s tax structure gives an advantage to large, multi-state corporations over local Tennessee businesses: “Tennessee’s code includes a ‘Las Vegas loophole’ that allows multi-state corporations to shelter income, losing the state up to $250 million in revenue annually. We also lose up to $400 million in revenue because we don’t enforce the collection of the use tax on online and out-of-state sales. This hurts Tennessee businesses and it hurts the state budget.”
The state’s lack of investment in public services like higher education means the state will fall further behind as companies choose to place new jobs in states with a higher-skilled, more educated workforce. Tennessee needs more revenue and needs to raise this revenue in a way that encourages job retention and creation now.
“Those running for political office in Tennessee cannot placate the voters anymore with faulty rhetoric and false claims — the state is facing a dire budget shortfall, and TFT has solutions that would raise more than $1 billion in revenue while providing most Tennesseans a tax cut. It’s a no-brainer,” Williams says.