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VOL. 38 | NO. 13 | Friday, March 28, 2014

Tax cuts = less revenue? Basic math hits home

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With Tennessee having collected $176 million less in taxes than expected, Gov. Bill Haslam finds himself in a tight spot.

The budget situation is bad enough that Haslam has declared this might not be the best year to cut taxes. You know it’s bad when a Republican doesn’t want to cut taxes.

That wasn’t the case in 2012, when the legislature passed a law to gradually get rid of the inheritance tax.

Haslam’s bill was carried through the General Assembly by Rep. Gerald McCormick (R-Chattanooga) and Sen. Mark Norris (R-Collierville), both majority leaders.

The law slowly eliminates the inheritance tax, beginning with raising the exemption level from $1 million to $1.25 million in the 2013 tax year. The exemption level increases until it is phased out in 2016.

As a result, Tennessee is losing some serious cash. In the 2013-2014 fiscal year, it was estimated that the state would lose $14 million dollars a year with this tax cut. But it will keep going up until the tax is eliminated.

How much has this cost our state so far?

Tom Humphrey, the venerated Nashville Bureau Chief of Knoxville News Sentinel, wrote that the Haslam administration doesn’t balance a budget like a family, referring to that time-honored suggestion by many that government would work much better if it just stuck to a budget like hard-working American families must do.

It started with the General Assembly, mostly Republicans, voting to “cut income from four sources – the state inheritance tax, the state gift tax, the state sales tax on groceries and the Hall income tax on some stock and bond dividends and interest,” writes Humphrey.

“Collectively, they total about $165 million in lost annual income. The biggest chunk of that, about $100 million, comes from repealing the state inheritance tax, and that was done on the easy installment plan.”

A family, Humphrey says, wouldn’t make these types of budget decisions.

“Maybe a family would, on the other hand, decide to squeeze a few dollars out of the budget to help a relative who has come upon hard times. Tennessee’s political family, on the other hand, has not budgeted funds even in relatively good times to cover help for 7,100 people in real families who are on a waiting list with the Department of Developmental Disabilities, for one of many examples. Tennessee does balance its budget, as mandated by the state constitution. But it does not do so in the way many real families would.”

So why do we continue cutting taxes for higher-income taxpayers while struggling to balance our budget?

“Part of that is that it is a political struggle between the haves and haves not,” says Dr. Mark Byrnes, dean of the College of Liberal Arts at Middle Tennessee State University.

“The people who pay the Hall income tax and the ones who pay most of the inheritance tax are richer, and therefore, tend to support the Republicans,” he adds. “It’s politically easier for the Democrats to say leave those in place because the rich folks are more likely to vote for their opponents anyway, so what does it harm them?”

These tax breaks affect the rich, but the GOP will tell you that they don’t just affect the rich. They will point out the lowering of the sales tax, which was lowered to 5 percent from 5.25 percent, has impact on everyone.

“A 1/4 of 1 percent cut in the food sales tax rate does nothing to reduce the unfair tax impacts of the sales tax on working families, while all the other tax cuts benefit the wealthiest Tennesseans, who now pay a tiny share of the cost of government while receiving great benefits to their businesses and personal income,” says Dick Williams, chairman of Tennesseans for Fair Taxation.

When Republicans brag about cutting the grocery tax, remember that many were against it until Haslam supported it.

In August 2011, Democrats proposed the grocery tax be cut. Rep. McCormick called the proposal “irresponsible,” and Lt. Gov. Ron Ramsey (R- Blountville) said it was not the right time to lower the tax.

But a few months later, when the Governor released his proposal to cut the grocery tax, it became all the rage with the state’s Republican Party.

“I think it’s great,” McCormick told TNReport. “It’s a way for all Tennesseans to be able to participate in a tax cut.”

Most often, those in upper income brackets benefit the most from tax cuts. The food tax saving for a family of four was estimated to be a little over $20 a year. That won’t even buy a tank of gas.

Meanwhile, families in higher brackets were getting an even larger tax break. I understand that tax breaks can help bring economic benefits to the state, but look at it from the regular person’s point of view.

Haslam makes enough money from his family business to never take a salary again, but most aren’t in the same boat. Most people work hard simply to pay the bills, and many need real help to cope with rising costs and unforeseen expenses.

But regular folks are often overlooked. The breaks are given to the people who don’t need breaks. And the people who do need breaks continue to fall behind.

Often, they fall so far behind that they need government assistance. When they ask for help, they are attacked as “takers.”

Maybe they wouldn’t need assistance if the Republican Party remembered them when they passed tax breaks to help people who aren’t in need.

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