March 23, 2009 - For immediate release…

Contacts:

• Bill Howell, TFT Nashville, 615-751-5011 (office) or 615-289-1397 (cell)
• John Stewart, TFT Board Chair, 865-584-3834 (home) or 865-806-8115 (cell)
• Brian Miller, TFT Knoxville, 865-687-9600 x14 (office) or 865-712-8006 (cell)

Myth-busters inject a “dose of reality” into Legislative Plaza

As the Governor prepares to present his proposed budget Monday evening, four “myth-busters” wearing white coveralls and wielding mock insect sprayers are visiting legislative offices Monday afternoon to inject some reality and humor into the conversations about budgets and revenues. The myth-busters are members and allies of Tennesseans for Fair Taxation (TFT).

John Stewart, Chairman of TFT says, “We hear and read so many myths and delusions concerning the state budget, and the revenue needed to balance it, that we felt it necessary to dramatically ‘clear the air’ and spread an antidote of plain truth and common sense.”

“The reality is that the current economic downturn is only part of Tennessee’s budget problems,” notes Stewart. Tennessee relies on sales taxes for 70% of state revenue, but sales of taxable goods have fallen from 70% to 40% of the overall economy in the last 60 years. Even with the sales tax increases of 1971, 1976, 1984, 1992, and 2002, state and local taxes as a percent of income have actually declined since 1970. “We’re just treading water at best. Anyone who denies that either does not have a complete grip on reality, or is trying to pull the wool over our eyes,” adds Stewart.

See the November 2008 presentation by the State Comptroller for more, available at http://www.tn.gov/comptroller/shared/pdf/LeagueofWomensVoters11-1-08.pdf

Since the cost of government activities is driven mainly by personnel costs, both for government employees and for services purchased from the private sector, the rate of growth is very close to the growth of the economy as a whole, as measured by personal income. However, our main revenue source, sales tax, has not kept pace with economic growth, even in good years. “These are irresistible market forces. When these forces collide with the myths that for too long have dominated our discussion of state revenue needs, the myths must be dispelled,” states Stewart.

Jean Harrington adds, “Some people think Tennesseans are dogmatic and stuck in their ways, but Tennesseans are practical people when it comes down to it. Tennesseans, like all people, would prefer not to raise taxes at all. But once it’s clear that a tax increase is unavoidable, Tennesseans prefer that it take the form of comprehensive tax modernization, including elimination of the food tax, a significant cut in the sales tax on other items, and the broadening of the current state income tax to include all income, with generous exemptions and a graduated rate.”

The support for different types of tax increases has been fairly consistent in polls done through the years. Support for creating a statewide property tax has been in the 7 to 10% range; support for increasing the sales tax has been in the 10 to 14% range; support for adding an income tax on top of existing taxes has been in the 27 to 34% range; and finally, support for comprehensive tax modernization (repeal of the food tax, reducing the sales tax, and creating a broad-based state income tax) has been in the 40 to 61% range.

“Another one of the myths out there that needs busting is that Tennessee doesn’t have a state income tax. The reality is, we do,” adds Phil Schoggen. Well over 200,000 Tennesseans currently pay the state Hall income tax. “Our plan all along has been to repeal that tax, and replace it with a less discriminatory income tax that applies to all types of income.”

Dick Williams, another TFT Board member, points out, “With an economic crisis of this magnitude, we can’t afford to let myths stand in our way. The reality is, you can increase taxes in a recession, and it has been done with successful results many times. There is wide agreement among economists that recessions as deep as the current one do not end without significant economic stimulation from government.”

“There are only two ways to fund this kind of economic stimulus, borrowing or tax increases,” adds Williams. “Since borrowing is not an option for states, this is a great time to add some long-overdue fairness to our tax system with a progressive package for tax modernization.” The reason progressive taxes work in a recession is that the additional taxes on the top end will reduce the savings of higher income families, but have little effect on their spending. It is spending (both government and private) that will restore the demand for goods and services to a level that will again support a widely shared prosperity.

See “Budget Cuts or Tax Increases at The State Level: Which is Preferable During a Recession?” by Nicholas Johnson, Center of Budget and Policy Priorities, available at http://www.cbpp.org/1-8-08sfp.htm

Under the proposal supported by TFT, 60% of Tennesseans, including low- and middle-income families hardest hit by the current economic downturn, would actually pay less taxes. Brian Zralek, of MANNA, an anti-hunger advocacy group in Nashville, says, “The reality is that the sales tax on food, third highest in the nation, prevents people from saving for education or home ownership and working their way out of poverty.”

Brian Paddock of Jackson County adds, “The reality is that budget cuts will make the recession deeper and longer in Tennessee. The Federal stimulus has helped to diminish the cuts, but if Tennessee is to position itself to prosper again after the recession, we need a Tennessee stimulus to avoid the remaining cuts and allow spending on more ‘shovel-ready’ projects and other stimulative undertakings.”

See “Fifty Herbert Hoovers,” by Paul Krugman for more at http://www.nytimes.com/2008/12/29/opinion/29krugman.html?_r=1

“Tax modernization is a triple-whammy for stimulating our state’s economy,” notes Stewart. “Reducing taxes for the bottom 60% of income earners will increase consumer spending. Asking the wealthiest families to pay their fair share will likely reduce savings, but will have little impact on their spending. And finally, raising one billion dollars in state revenue will both avert damaging budget cuts while also injecting public dollars into our communities. It’s a win-win-win proposal.”

TFT is supporting the Tax Modernization and Economic Stimulus Act (SB2054/HB 2182), that would completely repeal both the state and local food tax, reduce the sales tax on all other items by nearly a third, repeal the Hall income tax, and enact a broad-based, progressive state income tax. While lowering taxes for low- and middle-income families, including over 60% of Tennesseans, it will raise $1 billion in funding to avoid budget cuts and invest in Tennessee communities to help jump-start the state economy.

A summary of Tax Modernization and Economic Stimulus Act, supported by TFT, can be found at http://www.fairtaxation.org/reform/overviewofplan.php

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