Random Notes
The Van Hilleary for Governor campaign has issued a statement condemning House Speaker Jimmy Naifeh's plan for an unconstitutional 4.5% flat income tax. It's short and to the point. ... Hilleary also has issued a press release with documentation proving rival GOP candidate Jim Henry at one time lobbied in favor of the income tax. The press release is not yet online, so here are the basics: Henry registered as a lobbyist for "tax reform" to assist then-Gov. Ned McWherter, who sought to pass an income tax to fund the Better Education Program. Henry today claims he never lobbied for the Income Tax, but press accounts in various newspapers at the time did report Henry indeed was hired by McWherter specifically to lobby members of the General Assembly to support the Income Tax. Today, Henry claims those press reports are "wrong" but there's no evidence he asked for a correction at the time and no corrections were printed. When the press release is on Hilleary's campaign website, I'll add a link to it.

Balancing the Budget
Tennessee Politics reports the following on its website Thursday: "State Treasurer Steve Adams has identified about $400 million in various reserve funds that he said could be reasonably used to balance the current year’s budget. The biggest single chunk is $100 million of the $178 million now held in a 'rainy day fund'." Well, with the shortfall now claimed to be approaching $480 million, you have to wonder why Mr. Adams ignores the remaining $78 million in the rainy day fund. Seems to me it's raining. With that $78 million, plus the $400 million Mr. Adams identified, the budget can be balanced without a tax increase. Hurrah! Now vote for it, legislature, and go home.

My Latest Column
My latest Nashville City Paper column, published in the Friday, April 26, City Paper and on its website, was chopped for space. My fault - I got it in late, and ad sales and other stories had eaten up much of my space. But it was a good one. So here it is, the way I wrote it:

Why TennCare must die
Read the massive audit of TennCare and you'll know TennCare cannot be reformed or managed right. The audit was released March 28, but neither TennCare nor the Sundquist administration bothered to bring it to the public's attention. You can see why. It supports the view that TennCare is the primary cause of the state's budget woes.

The truth is, TennCare wasted half a billion dollars of taxpayer money last year through its woeful – and chronic – mismanagement and high level of tolerance for fraud and abuse. But the Sundquist administration won't fix the TennCare mess, preferring an income tax to pay for TennCare's ever-inflating cost and rampant waste.

TennCare spent $48 million last year providing healthcare to thousands of people who apparently don't live in Tennessee or, in some cases, in the United States. TennCare's response to that huge waste of money exposes the taxpayers-be-damned mindset of its bureaucracy and the governor at the other end of the leash.

Lola Potter, official spokesperson for the boondoggle, told another publication, told another publication that it isn't necessarily a waste of $48 million because "people in other states pay for two-thirds of the program."

True, the federal government pays for two thirds of TennCare's $5.3 billion (and skyrocketing) annual cost. But gee whiz Lola, hard-working Tennesseans do pay the other third, don't they? That's $1.76 billion, of which some $16 million was wasted on healthcare for people who don't live here – and don't pay taxes here.

That $16 million could fund some state parks, or pay some teachers – or almost cover the $17 million that Gov. Sundquist's can't-be-cut budget allocates to development of "Greek Row" at Middle Tennessee State University. Apparently, we're helping fraternities and sororities with their college living arrangements.

The TennCare audit is more shocking when you realize that last year's audit found much the same mismanagement and waste. And so did the one the year before that, and … so on.

I quote from the audit: "As noted in the six prior audits of the Bureau of TennCare, internal control over TennCare eligibility is not adequate."

Or, as state Comptroller John Morgan said, the audit's findings "were very similar to prior years.''

The audit also found double dipping. TennCare paid the state Department of Children's Services $1.7 million for services that it had already paid its managed-care organizations to provide. And TennCare allowed some people to enroll twice and made double payments to the insurance companies that provide benefits to TennCare enrollees. The audit said TennCare has no way to ensure it is not making duplicate payments.

That's just the tip. Here's the iceberg:

TennCare spent $465 million to insure more than 130,000 people who gave TennCare a P.O. box as an address, even though federal regulations say TennCare is not supposed to enroll people who don't provide a street address. Chances are, most of those P.O. boxes are people who don't live in Tennessee.

But hey, it's only $465 million and, after all, as Lola Potter, official spokesperson for the money pit, says, people in other states are paying two thirds of it. So you, dear Tennessee taxpayer, should not mind picking up the rest of the tab for such waste and mismanagement.

After all, TennCare is not the cause of the budget crisis (wink, wink). So just shut up and pay your income tax.

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The TennCare audit, part of a massive audit of federally-funded state programs, is online here. Don't read it unless you are prepared to be physically sickened by the way the state mismanages your hard-earned tax dollars.

Time to form some LLCs!
There is a huge and wonderful loophole in the McCain-Feingold Campaign Censorhip Act (also known as campaign finance reform). Check out what Mickey Kaus has to say about the loophole. And get ready to form unincorporated political advocacy groups!

Updates
My latest Nashville City Paper column is online here. Also, the Tennessean story referenced in the post below indicates just how little that paper's reporters truly understand about state government.

The Tennessean says the State Funding Board "consists of economists and others." In fact, there are no economists on the State Funding Board. None whatsoever. By law, the Funding Board has the following members: the governor, secretary of state, comptroller of the treasury, state treasurer, and commissioner of the Department of Finance and Administration. The Funding Board is an arm of the executive branch.

The Board does call economists to testify. In the last four years, as the Sundquist administration has pursued an income tax, the Board has heard routinely from a small group of economists hand-picked by the administration who tend to support the administration's views on revenue and taxes. It has NOT felt the need to call the highly distinguished economist William Ford, even though Dr. Ford teaches at Middle Tennessee State Unviversity less than an hour's drive from Legislative Plaze. Perhaps that's because Ford publicly doubts the wisdom of an income tax.

Nor does the Funding Board call on economist J.R. Clark, holder of the Probasco Chair of Free Enterprise at the University of Tennessee at Chattanooga, or Coldwell Daniel III, Professor of Economics at the University of Memphis, to testify. Both, incidentally, are among 53 economists across the nation who have endorsed a South Carolina gubernatorial candidate's proposal to eliminate that state's income tax. You can see why the administration wouldn't invite them to testify on taxes.

For more on that click here and here.

The Big Lie Continues
The Tennessean's story today on Speaker Naifeh's proposal for a 4.5% income tax has this curious item buried deep in the story:

The State Funding Board, which consists of economists and others, will meet Monday to try to forecast how much revenue the volatile franchise and excise tax will produce and follow that up with another meeting a week or so later to come up with fresh estimates on collections from all revenue sources.

Why, it must be asked, is the State Funding Board having a special meeting to "forecast" revenue from only one of the state's 23 different tax sources? The sad answer appears to be that the State Funding Board, which is a political arm of the executive branch, is being used as a tool in the administration's ongoing strategy of deception in quest of an income tax.

There is no other reason for the Funding Board to have a special meeting April 22 to "try to forecast" revenue from the F&E tax. After all, the Department of Finance will issue hard numbers on F&E collections in early May. So why not wait three weeks?

Because the May numbers are likely to show a big increase in F&E collections compared to the last two months.

The administration knows this. It happened last year. And such an increase this year may well make the "shortfall" less dire, and undercut the "budget crisis" atmosphere the administration has created in hopes of tipping 51 House members and 17 Senators over the income tax cliff.

The campaign filing deadline for the upcoming legislative election is passed, but the May revenue numbers aren't out yet. Therein lies the administration's narrow window of political opportunity to finally succeed in its four-year quest to create an unconstitutional income tax.

Why is the May revenue report so important? Because of the way F&E taxes are collected.

In early March, Finance Commissioner Warren Neel released the revenue data for February. Now, it showed actual revenue growth from 19 of the state's 23 taxes, but Neel focused solely on F&E taxes and noted a substantial decline. But what Neel didn't admit is, F&E taxes are paid quarterly and must be paid by the 15th day of the fourth month after the end of a company's fiscal year. And according to the Tennessee Department of State, most Tennessee businesses use the calendar year as their fiscal year. That means very few businesses actually owe the tax to the state until April 15. And those collections won't be counted and announced until early May.

At the tail end of a recession, it's not surprising that business owners aren't rushing to send checks to the state two months before they are due.

Incidentally, this isn't the first time Neel, a cheerleader for the income tax, has misrepresented F&E data to support the administration's claim of a revenue crisis.

In April 2001, Neel announced the monthly revenue totals by highlighting a $98 million decline in franchise tax revenues. April reports detail revenue collected in March. But Neel, as he did again this year, failed to mention that most Tennessee companies don't have to pay the tax until mid-April.

No other media caught the spin, but I did, while working for the Tennessee Institute for Public Policy. I wrote a press release, which was published several places including as a commentary on Chattanoogan.com, which revealed Neel's deceptive tactic and predicted that, when the April F&E revenue was counted and reported in early May, F&E taxes would rebound.

I predicted: "Franchise tax revenues likely will rebound strongly in April as Tennessee businesses meet the April 15 deadline - but that revenue won’t be tallied and reported to the General Assembly and the general public until mid-May."

Sure enough, that is exactly what happened. Franchise and excise tax collections in April 2001 soared to $93 million more than the budgeted estimate for that month, erasing the previous month's F&E 'shortfall' and boosting overall revenues to a $69.5 million surplus over the "budgeted estimate" for revenues that month. You can see my comments on that development in another piece I wrote, also published by Chattanoogan.com.

How did Neel respond to that good news? He called it bad news. In his May 16 press release reporting the revenue numbers, Neel claimed the state still faced a large deficit "excluding franchise and excise tax collections." Funny - a month earlier, he had been claiming that declining F&E revenue was a reason the state needed to pass an income tax.

It is reminiscent of how Neel has either spotlighted or excluded sales tax revenue from vehicle sales depending on whether it is up or down. To Neel and his boss, good revenue is bad news but bad revenue is good news because it makes it a little easier to pass an income tax.

Which brings us full circle to now, and this strange meeting of the State Funding Board that will look solely at the F&E revenue.

A year ago, as reality exposed the deceptive shenanigans of Warren Neel, I suggested it was "time for the Department of Finance and Administration to stop playing games" because "good public policy can not be build on a foundation of bad information.”

Unfortunately, this strange and unnecessary meeting of the State Funding Board tells you that Neel and his boss haven't stopped playing games. Their Big Lie strategy continues.

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For more on how Warren Neel and the Sundquist administration spin the revenue numbers to create a sense of crisis, scroll down to read past articles and commentaries.

My Latest Column is online here in the Thursday Nashville City Paper.

An excerpt:

A study by economist Mark Zandi of Economy.com for the National Governors Association discovered a steep drop in corporate tax collections and personal income tax collections are the prime reasons state revenues declined nationally. Zandi's report, “The Outlook for State Tax Revenues,” said at least 40 states are now experiencing budget shortfalls in the current fiscal year, and “The falloff in state tax revenues has been both pronounced and wide-ranging across all major tax revenue sources. States have thus suffered tax revenue shortfalls regardless of the structure of their tax systems,” he said.

Unfair Share Tired of hearing proponents of a state income tax whine about "tax fairness" and claiming the rich are not paying their fair share? Show them this AP story, which boasted a great headline: Tax Burden Falls on the Wealthy

An excerpt:

For 1999, the most recent year for which complete Internal Revenue Service statistics were available, 6.3 million taxpayers whose incomes were in the top 5 percent paid more than 55 percent of all income taxes. They had adjusted gross incomes above $120,846 a year, meaning spouses could earn a bit over $60,000 each and be considered among the nation's richest.

The wealthiest 1 percent - those earning $293,415 and up - paid more than a third of the taxes, while their share of the nation's taxable income was 19 percent.

Taxpayers in the bottom half paid only 4 percent of income taxes in 1999, according to the IRS. These 63 million taxpayers earned, on average, less than $26,415 a year.

The cause of the rising inequity in taxation - in which a small minority pays most of the cost of government and a growing number of people pay little or nothing - is a system of progressively higher rates. The same kind of "progressive" income tax Sen. Bob Rochelle is pushing for Tennessee. But here's the real truth: Federal dollars pay for about two-thirds of the state's budget. But the top half of all income earners pay 96 percent of all the income taxes. The reality is, the rich already fund most of state government. Requiring the not-so-rich to pay a minor portion of the overall budget is not too much to ask.

Sales Tax Steady Performer Tennessee's latest tax revenue data is out and, predictably, the mainstream media is focusing on the overall number and accepting the spin proffered by the Sundquist administration's Finance Commissioner, Warren Neel. But in accepting Neel's version, they miss the real and very important truth: the sales tax is producing revenue on pace with last year, despite an economic slowdown for much of the fiscal year.

And while overall tax collections are down $82 million in the first eight months of collections for the fiscal year compared to a year ago, the decline appears to be heavily related to a recent change in the schedule for collection of franchise and excise taxes .

Tennessee's sales tax collections rose 1.39 percent in March over March 2001, but franchise and excise tax collections were down 24.44 percent. For the year, F&E collections are down $124 million compared to a year ago. There may be a simple reason for that: Under Tennessee law, companies are not required to pay their franchise and excise taxes until the 15th day of the fourth month after the end of their business fiscal year. According to the Tennessee Department of State, most businesses in Tennessee use the calendar year as their fiscal year; hence, F&E taxes are not due until April 15.

In a slow economy, it is doubtful that businesses rushed to send checks in early.

Incidentally, a year ago this month, Neel used a temporary dip in F&E collections to deceptively support claims the state faced a shortfall. He announced monthly revenue totals in April by highlighting a $98 million decline in franchise tax revenues and claiming it proved the state faced a huge shortfall - but Neel failed to mention that most Tennessee companies don't have to pay the tax until mid-April, so the April number, which covers March collections, was borderline meaningless. Indeed, a month later F&E collections soared to $293.8 million in April, $93 million more than the budgeted estimate for that tax for that month. That erased the previous month's F&E 'deficit' and boosting overall revenues to a $69.5 million surplus over the "budgeted estimate" for revenues that month. A fully detailed examination of Neel's deception last year and my exposing of it is posted here.

The message for taxpayers is: always be wary of Neel's numbers. Study them for spin. Don't swallow them whole. And for legislators, the message is this: wait for the May numbers. Otherwise, there's a very good chance you'll be making important public policy choices based on the half-truths and bad information propagated by the current administration.

Vindication A month ago, I alleged in a column posted here that State Finance Commissioner Warren Neel was misrepresenting the state's true revenue picture by focusing primarily on the franchise and excise tax, one of only four of the state's 23 taxes of which collections actually dropped in February compared to February 2001.

I wrote, "What Neel doesn't tell you is that F&E taxes are paid quarterly and must be paid by the 15th day of the fourth month after the end of a company's fiscal year. And according to the Tennessee Department of State, most Tennessee businesses use the calendar year as their fiscal year. That means very few businesses actually owe the tax to the state until April 15. At the tail end of a recession, it's not surprising that business owners aren't rushing to send checks to the state two months before they are due."

I also noted how Neel's predecessor John Ferguson had pulled the same deceptive trick last year, only to see F&E revenues soar the following month (as I had predicted in a column written a year ago that was published at Chattanoogan.com).

Well... it appears that while Neel wants to play games and misrepresent facts, state Rep. Matt Kisber is more honest about how Tennessee collects its revenue.

Kisber, chairman of the House Finance Committee, told the Tennessean that, in the Tennessean's words, tax collections to be reported later this month or early in May, particularly franchise and excise taxes, will be pivotal in helping officials make financial projections, including how much revenue to expect and how much they will need to raise."

What isn't clear from the Tennessean is that the revenue figures that will come out in both April and May are crucial. May's data release will include F&E collections in the all-important month of April.

Strong collections could go a long way toward wiping out the alleged 'deficit' for the current fiscal year.

Something curious this way blogs A traditional-media editorial writer says bloggers are playing an increasingly important role and newspapers would be wise to pay attention - and to get involved in blogging. "I have begun to notice something curious that happens most Saturday nights on the Internet. Quite soon after The New York Times and Washington Post place the articles and opinion columns for their Sunday editions online, people start posting online critiques of the material," says Geitner Simmons, an editorial writer with the Omaha World-Herald. "Over the next 24 hours or so, the online responses sometimes coalesce into a useful counterpoint and supplement to the original reporting or commentary."

Simmons's article appears in the Spring 2002 edition of Masthead,the quarterly journal of the National Conference of Editorial Writers, which isn't available online at its own site or at NCEW.org, but is available via the IntellisearchNow.com database.