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Business and Economy Tax and Budget

TFT Sees Tipping Point in Battle Over Income Tax Amendment

Tennesseans for Fair Taxation, the folks known for advocating an income tax despite long odds, face a bigger fight as lawmakers move toward a constitutional ban on a tax on personal income.

About 40 TFT members from across the state gathered at the Second Presbyterian Church in Nashville on Saturday for their annual meeting to discuss their agenda and ways to better communicate their message of “tax justice.”

While the group is known primarily for the income tax stance, that proposal tends to overshadow other elements of their efforts, which involve lowering taxes elsewhere and looking for allies in the business community where they see unfairness on taxes in the private sector.

Erica Thomas of Memphis, who was in a carpool that left for Nashville at 4:30 a.m. Saturday, said the income tax ban is the most immediate challenge TFT faces.

“Stopping it in its tracks I think is going to be the biggest thing we have to focus our energies on,” Thomas said. “What you’re doing is cutting off your nose in spite of your face, cutting off any other possible revenue sources that we could have that invest in the state.

“It has already been shown that a sales tax is not going to get us out of this problem. Tennessee is surrounded by so many other states that have lowered taxes on basic necessities, so people are going across state lines. I just don’t understand the disconnect there by legislators.”

Sen. Brian Kelsey, R-Germantown, is sponsoring a resolution (SJR221) that would explicitly prohibit the General Assembly from enacting or permitting an income tax. It passed the Senate on May 18, 26-4, and has been placed on the House calendar for Jan. 10, 2012.

The resolution is co-sponsored in the Senate by, among 19 Republicans, two Democrats: Andy Berke of Chattanooga and Eric Stewart of Belvidere.

Berke, the Senate Democratic Caucus vice chairman, told TNReport last spring that “Tennessee has a strong tradition of being against the income tax — it’s one of the reasons why we are a business-friendly state.” He added, “Most Tennesseans understand that (not having an income tax) is important to our way of life and our quality of life.”

Regarding the issue of whether the income tax is already unconstitutional, it’s time to “get that settled,” said Berke, “so we won’t really have to have that debate anymore.”

For the constitutional amendment to be approved, it would next have to pass the House by a majority vote in 2012, then pass the next Legislature by two-thirds votes in each chamber, then go before the people in a referendum in 2014. Supporters of the referendum say it is the best way to close the door on an income tax in the state for good.

In addition to advocating for an income tax, Tennesseans for Fair Taxation emphasizes its goal of cutting the sales tax on food and reducing the sales tax in general, which the group sees as regressive, even “immoral.”

Samantha Wallace of Knoxville, an organizer for TFT in East Tennessee, says the group’s mission is about justice. The organization wants to see an adequate revenue stream to support government services it says are vital.

“The main purpose is to generate enough revenue to support our state, and we want to do that in as just a way as possible,” Wallace said. “What I mean by ‘justice’ is right now the way we generate revenue in the state is immoral.

“We tax things like clothing and food. These are predominantly focused on the sales tax. It doesn’t raise enough revenue for the state. It’s immoral because we’re forcing people who can’t afford it to pay additional taxes on their food. We have a regressive tax. We need to fix that.”

Elizabeth Wright, executive director of TFT, says the primary goal is to “modernize” the state’s tax structure. She said the sales tax hits low- and middle-income families hardest because it is regressive in nature.

“We want to make sure that our economy thrives, that Tennessee thrives,” Wright said.

To that end, in a roundtable discussion in one of the breakout groups for the day-long meeting, members of the group discussed ways to partner with the business community.

Nell Levin said it is important for the group to bring the business community on board as allies in TFT’s efforts.

“I really believe we’re never going to win unless we get them on board and there’s a lot of things about the business taxation that is really unfair,” Levin said. “We have one of the highest franchise taxes in the Southeast. This is something we could go to business people and talk to them about.”

It was clear that TFT members like some of the tax legislation the General Assembly passed this year, like an adjustment that increases the exemption on the Hall income tax, which derives revenue from interest and dividends on investments. The Legislature raised the exemption on the Hall tax on those 65 and older to $26,000 for single taxpayers and $37,000 for joint filers. Those are increases from $16,200 for single filers and $27,000 for joint filers.

“They actually made the Hall income tax more progressive,” Tony Garr said. “There does appear to be a willingness on the part of some Republican legislators to reduce the tax on food. Those are two things I think we need to keep in mind.”

Thomas was asked if she had 30 seconds with Gov. Bill Haslam what she would say to him. She responded it would be more about what she would ask him.

“If not an income tax, tell me how with the sales tax going up are we going to generate revenues we need across the state?” she replied. “I need you point blank to tell me: What is your plan for us getting there? So maybe we can collaborate on that, but I haven’t heard what your plan is.”

Haslam has repeatedly said there is no chance of an income tax being implemented in Tennessee.

Anne Barnett of Knoxville said she first got involved with TFT as a student at the University of Tennessee. Her concerns were raised by rising tuition, budget cuts and the school letting professors go.

“The tax structure in Tennessee is regressive,” Barnett said. “We’re always going to be fighting for more funding for public services.”

She was asked, being from Knoxville, if she had ever met Haslam, the former Knoxville mayor. She hesitated before answering.

“Not personally, but my husband used to deliver pizza to him,” she said. “And he would never leave a tip.”