Drive Time
Most mainstream media will report this data as bad news, when in fact it really just shows that Americans are increasingly able to live where they want to live while still being able to get a good job, afford a nice car, and enjoy a drive through the pretty countryside to get to work.

If your commute to work is long because you sit in traffic jams because government misspent the gas tax revenue and didn't widen the highway, that's an indicator of a problem. But if your commute to work is long because you chose to reside in a small town and drive 50 miles to a job in a nice, leafy suburban office park the edge of the city, that's an indicator of success of the American free enterprise system in providing the variety of choices that make your chosen lifestyle possible.

The story's snarky comments about each minute in a car being "wasted time" is simply hogwash from liberal elitists who can't stand the thought that someone somewhere is going to work today without riding on some dirty, government-subsidized mass transit boondoggle (except themselves, of course.) Liberals don't want you to have a leafy yard and a nice car. Their hope is that one day we all live in government-approved high-rise apartments and take government transportation to government-approved jobs, and pay really high taxes so liberal elites can live out on big country estates and get paid big bucks to administer it all.

But I surely don't consider every minute in my car to be "wasted time." Sometimes, in fact, I fill the tank and just drive around the countryside for fun, going places I've never been or places I've been a hundred times, just enjoying the drive and the driving. Sometimes I take the long way home, just to enjoy the drive, burn a little gasoline and make the world roll by at my own chosen speed. Can't do that on a bus.

Tennessee's $4.7 billion surplus
Tennessee is sitting on $4.7 billion while its governor claims there is a "deficit." The real problem: a rinky dink budget process that doesn't take into account unspent funds from the previous year but lets them accumulate year after year while legislators and the governor return to taxpayers for more taxes time and time again.

So says Gerald R. Klatt in this impressive report. So who is Gerald Klatt? For one, he's a retired U.S. Air Force lieutenant colonel. He's also a former auditor and commander of the Air Force Audit Agency, a Certified Cost Analyst with the Institute of Cost Analysis, a former federal government accountant, and a member of the Association of Government Accountants and the American Society of Military Comptrollers. In other words, he knows his stuff.

Thanks to Gail Keasling for the link to his fine work.

Letters
I just received a great letter from State Rep. Mae Beavers, seeking financial support for her campaign to unseat Sen. Bob Rochelle, the leading Senate champion of the proposal to lay an unconstitutional income tax on the backs of Tennessee workers. She is seeking to raise $250,000 in the next few weeks for her underdog campaign to beat Rochelle, who has been in the Senate nearly forever and is one of the biggest supporters of tax-and-spend big-government policies the state has ever known. He takes huge amounts of PAC money, and recently got the Tennessee Bureau of Investigation to probe Bob's bogus claim that Rep. Beavers didn't really reside in her district. It was dirty politics at its worst, which means it was Bob Rochelle at his best.

If Rochelle loses, the income tax is dead for at least a decade. But Mae can't beat Bob without the money to run an effective campaign. I'll be sending Rep. Beavers a check, though I'm not currently able to send a large one. I'd like to send her the maximum, so ... I intend to donate to her campaign and to the campaigns of other anti-income tax candidates across Tennessee, up to the legal campaign contribution limit, 25 percent of the gross revenue of all purchases made now through the end of June at my online store, which sells high-quality, reasonably priced vitamins, nutritional supplements, personal care products and fine skin care products. The formula is simple: shop at my online store with your purchases, and 25 percent of what you spend (not including shipping) will go to Rep. Beavers and other anti-income tax candidates for the state House and state Senate.

You can shop all day at the local mega-discount StuffMart and not a dime will go to help elect candidates who favor limited government and low taxes.

An added bonus to you: your purchases at my online store are sales tax-free.

The Dis-service Tax
Rob Ikard, state director for the National Federation of Independent Business, has written an excellent analysis of the proposal to extend the state sales tax to services, a proposal that is still kicking around the state legislature as an alternative to the state income tax.

Says Ikard: "Not only would Tennesseans be paying more for goods and services. This measure would also harm the ability of Tennessee's businesses to create wealth and jobs. Because the services that all businesses buy would be more expensive, fewer private sector dollars could go toward increased wages or benefits, adding new jobs, or purchasing wealth-creating capital. And because every business in Tennessee would be raising its prices to keep up with the tax increase, Tennessee's businesses would be at a disadvantage relative to competitors in surrounding states."

Also, says Ikard, taxing the purchase of services would disproportionately hurt small business: "Tennessee's small business economy creates jobs 2 to 3 times faster than the biggest companies, and the tax increase would impact small business the most. The state's bigger businesses can more easily hire accountants, lawyers and engineers, bringing them "in house", thus avoiding the service tax. Smaller businesses are more likely to purchase those services on the outside, forcing small businesses to shoulder a proportionally greater share of the tax."

An argument could be made that extending the sales tax to services while lowering the rate to keep the tax code change revenue-neutral might have a touch of fairness to it. It might be argued that taxing the purchase of services in some form would better reflect today's modern economy in which a larger share of consumer purchases are of services - paying landscapers instead of buying a lawnmower, for example. I, for one, would suggest such reform would exempt businesses from paying the tax when they buy services, because businesses do not really pay taxes but pass them on to consumers via higher prices, lower wages, fewer jobs and less R&D.

Unfortunately, that isn't the kind of well-thought-out, carefully-crafted tax reform that is being proposed right now. The sales tax expansion on the table is designed solely to raise a billion or so more dollars for the legislature to spend, and it will do so in a way that will bludgeon the economy and the small businesses that are its life force.

The real solution, of course, is for the legislature to match spending with existing revenue - and avoid harming the state's economy with a mammoth tax increase. Legislators discussing anything else are doing small business, the economy - and you - a gross disservice.

Good News
The growth of the economy in the first quarter was predicted in advance by members of the National Federation of Independent Business, reports the Nashville-based organization in this story first published in the magazine MyBusiness.

No Initiative
This story in the Austin, Texas newspaper about statewide reading test scores notes that "the best passing rates cannot be linked to district wealth, school size or race," and casts doubt on the concept that a one-size-fits-all "reading initiative" like the costly program proposed by Tennessee Gov. Don Sundquist are really that effective.

Consider the Houston school district, which in recent years has used $3 million in state grants to pay for specialists to help children who are struggling with reading and for coaches to provide teacher training - the exact kind of program Sundquist envisions for all Tennessee schools.

A lot of that money was spent at one Houston elementary school which subsequently saw a 20-percentage point drop in the passing rate on the third-grade reading test. Notes the Austin paper: "The percentage of students passing the reading test dropped despite reading specialists and coaches."

But in Williamson County, Texas, an affluent suburb north of Austin, "programs to tutor individual students sparked a boost" in scores. In that county, schools in the town of Georgetown used tutoring sessions after school or during class time, while in nearby Round Rock teachers at each school spend some of their conference time or after-school time giving extra tutoring to kids needing help with reading.

And it didn't take a budget-busting "reading initiative" to funnel more money into the schools to get it done - it merely took teachers who did what they are already paid to do: teach kids how to read.

Culture Cash
This story in the Tennessean says the Nashville area is Tennessee's most affluent region. Ever wonder why we're so far ahead of Memphis and the rest of the state? One reason may be Nashville's abundance of creativity.

An academic who has studied how culture and creativity impacts economic development has concluded that cities with more creative-type people are doing better in economic development.

The "creative class" - which includes includes scientists and engineers, university professors, poets and novelists, artists, entertainers, actors, designers, and architects, as well as the "thought leadership" of modern society: nonfiction writers, editors, cultural figures, think-tank researchers, analysts, and other opinion-makers - is "a profound new force in the economy and life of America," writes Richard Florida, professor of regional economic development at Carnegie Mellon University in Pittsburgh in this article in Washington Monthly.

I wrote about Florida's research and his "Bohemian Index" more than a year ago in this article for Nashville City Paper: "A researcher in Pittsburgh had a crazy notion that young high-tech professionals just might be drawn to the same kinds of urban communities as authors, artists, photographers, musicians, dancers, performers, designers and gay people - and the data supports it."

Nashville ranked highly on that index, which augured well for Nashville's economic growth.

Since then, Florida has developed a broader and more sophisticated set of measures collectively called the "Creativity Index," which you can find at CreativeClass.org.

Nashville doesn't rank as highly - the city is ranked 38th among major regions and 66th among all cities - but it outranks Memphis (49th among major regions and 132 overall). Florida's data also shows that 8.9 percent of Nashville-area workers are working in a "super-creative" role, which could be anything from songwriter to scientist or architect to programmer. In Memphis, it's 8.3 percent.


"Florida calls this driving economic force the Creative Class. Its members make their livings composing, designing, problem-finding and problem-solving. They are engineers and musicians, scientists and actors, software writers and novelists. They are the graduate students who once waited tables and guarded buildings after-hours," reports the Austin American-Statesman in this May 12 special report on the rise of the "creative class" and how it affects the economic development of a city. Austin, incidentally, has 16 percent of its workforce employed in "super-creative" roles.

Debate Update
On May 16, I posted this item outlining why I believe it is clear that Article 11, Section 9 of the state constitution expressly forbids the General Assembly from imposing an income tax, and challenged Attorney General Paul Summers to explain why it doesn't, promising to post his response here. After publishing that on this site, I sent an email about the online debate challenge to Alexia Levison, the governor's flack, and asked that she forward it to Mr. Summers. She responded a day or two later that she had, indeed, forwarded the message to Mr. Summers' press secretary. Presumably, Mr. Summers has had ample time to get the invitation, read my argument, and prepare a response.

He has yet to respond. Perhaps that is because he knows he really doesn't have a legal leg to stand on.

Shameless Plug
This web site is free to access, but not free to publish. If you enjoy this site and wish to help keep it operating, the writer would be pleased if you would support it by shopping here for any of your vitamin/nutritional supplement, personal care and fine skin care needs. And now... back to our regular programming.

How the Income Tax Hurts Small Business
Thanks to the National Federation of Independent Business for publishing this short article on how the proposed state income tax would harm small business (and my apology for not noticing this May 11 article a little sooner.)

The NFIB is a leader in the fight to protect small business owners from ever-higher taxation and ever-more-intrusive regulation. You can contact NFIB's Tennessee state director, Rob Ikard, by email by clicking here.

The Education Spending Lie
Does Tennessee spend less on education per pupil than every other state except Idaho, Arizona, Mississippi and Utah? That's the common claim of those who hope a state income tax will provide a flood of new money for schools. But is it really true? Not according to this chart, which compares state education spending and school-aged population data for Tennessee, Georgia, North Carolina and Florida. Turns out, Tennessee far out-spends those states.

The chart comes courtesy of "South Knox Bubba," who operates a website that includes a web blog commenting on local news coverage, primarily from the Knoxville News-Sentinel.

There is no Plan B
Todd Adams has posted several photos of Wednesday's activity at the state capitol, when the Sundquist administration sent a platoon of heavily-armed police to intimidate people who had gathered to peacefully voice their opposition to an income tax. The third photo in the collection is priceless, and makes it plain that the administration has no Plan B. It is the income tax or nothing, even if it means threatening children with violence. But then, the income tax is "for the children," is it not?

TNTaxRevolt has published a series of photos of the May 15 and May 22 peacful protests. This one shows the troopers descending the capitol steps, waving nightsticks as they approached the people just as the vote on the income tax was under way.

Another photo in the collection shows troopers' helmets clearly marked "State Trooper," a helpful reminder that the notion that we the people control our government is an archaic, forgotten notion. Today, the government is the government and it increasingly has the power to control the people. Wednesday truly was "the people vs. the powerful." Those troopers don't work for us, they work for the State and were used Wednesday to intimidate the people who pay their salaries. If I were one of the troopers at the capitol Wednesday I'd resign out of disgust with myself for having participated.

This photo, by the way, reminds us whose future we are fighting for. We, truly, are the ones who are doing it for the children.

State Power
Photos like this and the photo on this page are pictorial evidence of the dictum that power corrupts. I thought about the photos of the riot cops attempting to intimidate and frighten the protestors all day, and sometimes I admit I looked at the troopers' pudgy bellies and thought, "Hey guys, lay off the donuts!" But mostly, I was sickened.

If you weren't sickened by the sight of armed riot cops blocking the entrance to the state Capitol as the people's alleged representatives sought to impose an unwanted an unconstitutional income tax, you need a refresher course in what it, supposedly, means to live in a free democratic republic.

Hint: it ISN'T armed riot cops threatening to bludgeon with wooden bats anyone who dares attempt to enter their state Capitol to protest the possible enactment of an unconstitutional new tax.

And trust me, had you attempted to pass these storm troopers of the Sundquist administration, you would have been stopped with violence force. Never forget that last year an anti-tax protestor was physically assaulted by a state trooper for being loud.

Of course, the administration claims riot cops were necessary because of last year's "riot" in which a window was broken by a protestor. Count me a skeptic. The administration has at various times described the "weapon" as a brick, a rock, and a stick. It allegedy landed at the foot of some lawmaker inside the governor's office. But where is the rock or brick or stick? Surely, if such a crime was committed, the witnesses would know if it was a rock or a stick or a brick, and the evidence would have been collected. The rock ... or brick ... or stick ... would be in investigators' hands. We would have seen a photo of it. But we haven't. Why? Until there is solid evidence otherwise, my guess is: because it doesn't exist.

The Sundquist administration claims it exists, however, and so the media has bought the story without really questioning it, just as they've bought the administration's multiple lies throughout the 3-year income tax debate. And so, an income tax that clearly lacks popular support among the people continues to survive while Jimmy Naifeh looks for a way to cram it down the people's throats while state troopers are sent to intimidate those who would dare protest.

That's state power. It feeds on ego and arrogance, but mostly on an ever-ready supply of taxpayers' money. Which is why the photos are such a powerful argument for NOT giving the state yet more of our tax dollars. Just like power, money corrupts. If it didn't, Jimmy Naifeh and Don Sundquist and Bob Rochelle would not be seeking to violate their oaths of office and the state constitution in order to take for themselves an extra $1 billion of your money to spend.

Send them Emails!
Today's edition of TaxFreeTennessee has a list of the email addresses and other contact info for the four Democrats who switched their vote from "no" to "present" and kept the income tax alive. The site also has email and other contact info for legislators who voted No and legislators who voted yes. Send flaming emails of condemnation, or friendly emails of encouragement, where appropriate.

Broken Promises
The road to the brink of a state income tax started with Gov. Don Sundquist's broken promise. Yesterday, 45 state legislators - eight Republicans and 37 Democrats - cast a vote to violate your constitutional right to not have your income taxed. By doing so, they violated their own oath to uphold the state constitution, which nowhere authorizes the legislature to tax your income. Below is the list of those legislators who so badly want a billion more dollars to spend that they'll gladly break promises, eviscerate the state constitution, ignore seven decades of consistent and unanimous judicial precedent, and agree that earning a living in Tennessee is a state-granted privilege rather than a God-given right, in order to siphon money from your wallet with an income tax.

Not one of them should ever be elected to any position of public trust ever again. All of them should be targeted for defeat in this or the next election.

Republicans voting for the Income Tax
Ralph Cole, Elizabethton; Ronnie Davis, Newport; Stancil Ford, Talbott; Steve McDaniel, Parkers Crossroads; Bob Patton, Johnson City; Raymond Walker, Fairfield Glade; Keith Westmoreland, Kingsport; and Zane Whitson, Unicoi.

Democrats voting for the Income Tax
Joe Armstrong, Knoxville; Stratton Bone, Lebanon; Kathryn Bowers, Memphis; Rob Briley, Nashville; Henri Brooks, Memphis; Tommie Brown, Chattanooga; Gene Caldwell, Clinton; Carol Chumney, Memphis; Ronnie Cole, Dyersburg; Barbara Cooper, (Memphis; Charles Curtiss, Sparta; John DeBerry, Memphis; Lois DeBerry, Memphis; Craig Fitzhugh, Ripley; Joe Fowlkes, Cornersville; Ken Givens, Rogersville; Tommy Head, Clarksville; Ulysses Jones, Memphis; Mike Kernell, Memphis; Matt Kisber, Jackson; Edith Langster, Nashville; Butch Lewis, Manchester; Mark Maddox, Dresden; Kim McMillan, Clarksville; Larry Miller, Memphis; Paul Phelan, Trenton; Shelby Rhinehart, Spencer; Don Ridgeway, Paris; Randy Rinks, Savannah; Bobby Sands, Columbia; Johnny Shaw, Bolivar; Harry Tindell, Knoxville; Joe Towns, Memphis; Brenda Turner, Chattanooga; Larry Turner, Memphis; John White, Lawrenceburg, and Speaker Jimmy Naifeh, Covington.

There also were good guys (and ladies) in this fight. Those who voted against the income tax, thereby upholding your constitutional rights and their oath of office, are:

Republicans voting against the Income Tax
William Baird, Jacksboro; Mae Beavers, Mount Juliet; H.E. Bittle, Knoxville; Diane Black, Hendersonville; Jim Boyer, Corryton; Dewayne Bunch, Cleveland; Steven Buttry, Knoxville; Glen Casada, College Grove; Chris Clem, Chattanooga; David Davis, Johnson City; Bill Dunn, Knoxville; Steve Godsey, Blountville; Mark Goins, LaFollette; Jamie Hagood, Knoxville, Tre' Hargett, Bartlett; Beth Harwell, Nashville; Russell Johnson, Loudon; Joe Kent, Memphis; Joe McCord, Maryville; Bob McKee, Athens; Richard Montgomery, Seymour; Jason Mumpower, Bristol; Chris Newton, Cleveland; Doug Overbey, Maryville; Bubba Pleasant, Arlington; Dennis Roach, Rutledge; Donna Rowland, Murfreesboro; Charles Sargent, Franklin; Larry Scroggs, Germantown; Jack Sharp, East Ridge, and Paul Stanley, Memphis; Curry Todd, Collierville; Jim Vincent, Soddy Daisy, and Bobby Wood, Harrison.

Democrats voting against the Income Tax
John Arriola, Nashville; Gene Davidson, Adams; Dennis Ferguson, Kingston; Tim Garrett, Goodlettsville; Jere Hargrove, Cookeville; John Hood, Murfreesboro; Mike McDonald, Portland; Gary Odom, Nashville; Pete Phillips, Shelbyville; Phillip Pinion, Union City; David Shepard, Dickson; Mike Turner, Nashville; Ben West, Hermitage; John Mark Windle, Livingston; and Les Winningham, Huntsville.

Four Democats voted "present," which is the same as abstaining. All four initially voted no, but were pressured to change their vote in order to keep the bill alive. The cowards who caved were: Frank Buck, Dowelltown; George Fraley, Winchester; Mary Pruitt, Nashville; and John Tidwell, New Johnsonville.

Nashville Democrat Sherry Jones, who is opposed to the Income Tax, was absent for the historic vote because she is recovering from serious injuries sustained in a recent auto accident. Had she been there, the Income Tax would have received 50 NO votes and be dead for the year.

I got the above list from The Tennessean web site.

Oh Henry: He's Right!
Jim Henry, the other Republican candidate for governor, recently sat down for a Q&A with The Jackson Sun and while some of what he had to say deserves criticism, Henry absolutely nailed it when he explained some of the reasons the people of Tennessee don't trust their state govermnent.

Some excerpts:

"What is missing in Nashville is a trusted leader. Someone who could tell us something and we trust him... That's been missing for three years and we have suffered for it as a state."

"In order to effectively govern, the next governor has to be truthful with the people during the campaign. You can't lie to them and then change what you say an do."

"There is a great distrust of government in this state. ... But we set ourselves up for distrust. Consider that we use the University of Tennessee to give us our economic forecasting. We shouldn't do that. They have a direct interest in the outcome. How do you get people to trust that? It just gives them another argument against state government.

Henry is right. For years, the state has relied on the rarely-accurate economic predictions of UT economist Bill Fox to guide its budget and revenue decisions. Fox is strongly pro-income tax, and favors large increases in government spending, particularly - no surprise - in the higher education program that pays his salary.

But Fox's economic predictions are laughably inaccurate. Each year he provides the governor with a report on the state's economy. Three times in the 1990s, he predicted a recession or economic slowdown. None happened. Once, he predicted unemployment would rise a percentage point in the coming year, saying the economy simply could not maintain its strong pace. The economy made Fox a fool by accelerating, and inflation fell by nearly a percentage point. The result: tax revenues surged beyond the administration's expectations, creating a revenue surplus. In fact, Fox's near-annual prediction of recession was not reflected by reality until 2001. Hey, even a blind squirrel stumbles across a nut sometimes.

Henry is right - it makes little sense to ask the people of Tennessee to trust an administration that relies on an economist with the obvious conflict of interest of UT's Dr. Bill Fox. With his dismal track record, it makes no sense at all.

But Henry has his own problems. While he is critical of the state relying on UT for its economic projections, he seems to have bought them hook, line and sinker. In another part of his Q&A with The Jackson Sun, Henry claims the state is "losing hundreds of millions of sales tax dollars to catalog and Internet sales."

This is a favorite claim of Dr. Fox, but one that doesn't withstand serious scrutiny.

For one, Fox has claimed that Internet sales are already costing the state $300 million a year in lost sales tax revenue, but simple math shows that would mean the equivalent of the annual sales of about 20 major shopping malls in Tennessee has moved online. Do you believe that? If so, then why are all the malls still open? And why are new malls being built?

Fox made the $300 million claim as a prediction a few years ago, before the dot-com boom went bust and predictions of rocket-like growth for e-commerce were adjusted to more sensible predictions of slower growth. But Fox has not lowered his prediction to reflect that more sober view of the niche future of consumer e-commerce.

Not only that, Fox's data apparenly assumes two things that aren't true, and ignores a basic trend in e-commerce.

Fox assumes every dollar a Tennessean spends online would otherwise have been spent offline, and every dollar would otherwise have been taxable. Not true. First, a significant share of online shopping involves people buying items at auction sites like eBay, often from out-of-state sellers. Without the Internet, most of those purchases wouldn't happen, and those that did would occur at untaxed garage sales. Clearly, purchases on eBay are not costing Tennessee tax revenue. It's also not clear if Fox adjusted his data to exlude online sales by small businesses, which in some cases are tax-exempt offline.

It isn't clear if Fox really understands the trends in e-commerce, either. Most online retailing today, other than auction sites, is done by "multi-channel" traditional retailers. Walmart, for example. JC Penney. Sears. Only a loophole prevents the state from collecting sales taxes on those purchases. The Supreme Court has ruled that the Commerce Clause of the U.S. Constitution forbids states from forcing out-of-state entitites to collect their sales tax if the out-of-state company doesn't have a physical presence in the state. The traditional retailers have created subsidiaries to run their online stores, and if those subsidiaries don't have a physical presence in Tennessee, they are not required to charge you Tennessee's sales tax. A simple change in state law levying the sales tax on the parent corporation would close that loophole.

"Pure-play" online retailers - companies that have no traditional retail outlets - would continue to be able to avoid charging the sales tax, but that's only fair. Think about it. A traditional retailer with physical stores puts a large strain on government services such as roads, public safety, even schools. A web store doesn't. Shop at the mall and you drive there on government roads, while the mall relies on government-funded police and fire protection, and is often a leading hub around which suburban sprawl grows, creating need for more schools and more government services. Shop online and you do so on a computer you paid for, over an Internet connection you pay for, and you put no additional strain on costly government services.

Has Dr. Fox ever studied how much money government saves indirectly because of e-commerce? No. It doesn't fit with his tax-and-spend political agenda. He just continues to recite his $300-million-lost-revenue mantra without offering an intellectually defensible proof of the claim.

Sadly, Jim Henry seems to have bought it.

Fact-Checking Larry
Tim Mahar, a reader of this site from Manchester, sent me an email noting an obvious lie in Larry Daughtrey's column in the May 12 Tennessean.

Daughtrey's piece slammed conservative critics of the proposed state income tax: They make a lot of speeches about transferring power and money from Washington back to the states, but they ignore the fact that a state income tax would keep perhaps $2 billion in Tennessee's economy because it is deductible on federal tax forms.

Responds Mahar: "Federal tax deductibility amounting to $2 billion means that the underlying taxes deducted have to amount to at least $8 billion."

Mahar's right. And Daughtrey's claim that a state income tax "would keep perhaps $2 billion in Tennessee's economy" is just the latest lie published in the pro-income tax Tennessean.

Here's why:

The income tax itself will raise around $1 billion - federal deductibility couldn't possibly return a higher amount to taxpayers.

In fact, it will return much less than half. Federal deductibility of the income tax is not a dollar-for-dollar exchange. Taxpayers would deduct the amount of their state income tax from their federal taxable income. If they paid $1,000 in state income taxes and were in the federal 20 percent tax bracket, they'd see their bill from Uncle Sam cut by $200.

Thus, the proponents of the income tax want you to give up $1,000 to get $200.

Actually, you probably won't even get $200. Most Tennessee taxpayers don't itemize - and federal deductibility won't change that. Why not? Because most taxpayers do better by taking the standard deduction on the short forms than itemizing their 1040s. A state incomet tax won't change that.

The federal deductibility that income tax proponents hype is ... well, mostly hype.

Even if all state taxpayers were in the top tax bracket (most aren't) and even if all state taxpayers itemized their federal returns (most don't), a billion-dollar income tax such as the one proposed by Speaker Jimmy Naifeh can not possibly return more than $400 million to Tennessee taxpayers via federal deductibility.

Lyin' Larry's claim that the figure is "perhaps" five times as high is demonstrably absurd.

Debate Sought
Article 11, Section 9, of the state constitution says this:

The General Assembly shall not authorize any municipality to tax incomes, estates, or inheritances, or to impose any other tax not authorized by Sections 28 or 29 of Article 2 of this constitution.

It is my contention that this statement does in fact say that the General Assembly is not authorized to levy a general tax on incomes (except on income from stocks and bonds as specifically authorized by Sections 28 and 29 of Article 2), nor may it empower municipalities to tax incomes or other taxes not specifically mentioned in Article 2, Sections 28-29.

Attorney General Paul Summers, has issued an opinion that the income tax is constitutional, but only mentions Article 11, Section 9, in a single dismissive footnote in that document in which Summers says, "while the state currently taxes estates, inheritances, and incomes from stocks and bonds, cities and towns cannot be authorized to do so. It is unclear whether the courts would use this language to prevent municipalities from levying privilege taxes measured by income, should the legislature authorize them to do so."

Note that Summers cleverly focuses his footnote only on income from stocks and bonds, which the constitution explicity gives the legislature the authority to tax. Article 11, Section 9, refers not to incomes from stocks and bonds but incomes in general.

Summers' opinion claims there is no "distinct and positive expression forbidding an income tax in the text of the Tennessee Constitution." I believe Article 11, Section 9 in fact does distinctly forbid an income tax. Summers is hereby invited to explain fully why Article 11, Section 9, doesn't forbid a general tax on income at the state or local level. If he responds, I'll publish his response prominently on this web site.

Nashville attorney and 7th District Congressional candidate Forrest Shoaf has authored a good counter-argument to Summer's opinion on the constitutionality of the tax, which you can read here, courtesy of the web site of The Public Forum.

The Silence is Deafening
Tom Humphrey covers state government for the Knoxville News-Sentinel but it's not clear if he's read the state constitution recently. Appearing on Teddy Bart's Roundtable radio show today, Humphrey asserted that the constitution is "silent" in the issue of a state income tax.

It isn't.

Article 2, Sections 28 and 29 is where the constitution authorizes the legislature to levy certain kinds of taxes. The income tax is omitted. Those who favor the income tax say the silence doesn't automatically prohibit non-listed taxes.

But that's a moot point because of a paragraph deep in Article 11, Section 9, which explicitly lists the income tax as one of a variety of taxes the General Assembly is "not authorized" to allow municipalities to levy. And - here's the important part - the legislature is "not authorized" to empower municipalities to levy taxes on "incomes, estates, or inheritances, or to impose any other tax not authorized" by Article 2, Sections 28-29. Bottom line: cities can't be permitted to levy those taxes because the legislature itself is not authorized to levy those same taxes

Tom Humphrey is wrong. The state constitution is not silent on the income tax. It loudly declares it to be "not authorized."

For more on the issue of the constitutionality of the income tax, click here or scroll down to read the May 12 post Pathetic, Incoherent Lies.

Tennessee is Not Alone
Most states - including states with income taxes - are facing large revenue shortfalls, as this article from today's New York Times shows.

"Faced with a large, unexpected drop in income-tax revenue, states across the country are trying desperately to plug wide budget gaps in ways voters can abide in an election year," the Times reports. "Some are raising cigarette taxes and various fees. Some are cutting spending on the edges or using bookkeeping devices to make the deficits go away. A few have taken drastic measures to avoid raising sales or income taxes or cutting popular programs like education.

Income tax revenue is down, the Times says, because "weakness in the stock market has resulted in smaller receipts from the capital gains tax." Tennessee doesn't tax capital gains, but does levy a tax on stock and bond dividends.

The Times says most states are resorting to spending cuts, reserve funds and creative financing instead of huge tax increases to solve their budget problems. New York's Gov. George Pataki, for example, built his state's reserves during the "fat years" of the 1990s economic boom. Tennessee's Gov. Don Sunquist unwisely spent this state's reserves and even spent surplus revenues during the 1990s.

So, while Tennessee's revenue shortfall is rather small compared to the budget gaps facing other states, Gov. Sundquist's fiscal profligacy and mismanagement has left the state with fewer ways to solve it.

Waiting Game
Speaker Jimmy Naifeh apparently lacked the votes for his income tax Wednesday or he surely would've run it in the House. Meanwhile, an alternative tax plan, involving eliminating sales tax exemptions, wasn't voted on by the full House after its authors delayed so the bill's fiscal impact could be calculated for certain, and support could be rounded up to pass it. The House doesn't go back into session until Wednesday, May 22.

That's the good news.

The bad news is, a majority of the House seems bent on increasing government revenues to match the bloated spending requested by the governor, rather than tailoring spending to fit within existing revenues. That means the House is looking for a way to raise revenue, and right now an income tax is one of two plans getting attention. The income tax is still a threat.

The best outcome, of course, would be neither tax increase passes and the House, out of time, just passes a slimmed-down spending plan that lives within existing revenues (or perhaps comes close, and patches the difference with an increase in the cigarette tax.) Despite the bleating bureaucrats and the protests of Gov. Spendquist that we can't do any sort of cutting, and certainly not some across-the-board cut of, say, 5 percent in all departments, It is doable. Two states west of here, Oklahoma, which has an income tax, is dealing with a revenue shortfall by cutting spending - with a 16 percent cut possible.

Buying the First Amendment
The First Amendment is under assault in Seattle.

Paul Trummel, a former London journalist and college instructor, is semiretired now and lives in Seattle, where he self-publishes a newsletter and a web site. He considers himself a freelance writer and says he's a bona fide reporter. However, he isn't paid for his work. And he writes some stuff that's really offensive to some people. Lately, he posted some stuff on his website highly critical of the administration of a government-subsidized senior housing facility, where he lived.

King County Superior Court Judge James Doerty, who apparently is one of the stupidest judges in America, ordered Trummel to remove the material from the website - and ordered the old man jailed "indefinitely" until he complies with the order. Doerty says Trummel is not entitled to First Amendment protections of free speech because he isn't paid for his newsletter/online work.

Trummel argues that his writing is protected by the First Amendment just like the writings of any citizen, regardless of journalistic affiliation.

Being that I'm a journalist and my father-in-law is a Pulitzer-winning editor who now is chairman of the Freedom Forum, a leading First Amendment/free press foundation, you'd think I'd have a good grasp of the First Amendment. But apparently I missed the day in my Communications Law class where they discussed the little-known "Seattle Clause" hidden in the Bill of Rights that says the First Amendment's free press rights are only for people who got paid for their writings.

Naively, I thought the First Amendment was for everyone, even cantankerous Brits living in Seattle.

Apparently not.

Seattle Weekly reports that the Seattle case "bears some similarities to that of Vanessa Leggett, a Texas true-crime writer with virtually no reportorial credentials. She recently made headlines for being held a record 168 days in jail after refusing to turn over her notes to a judge in a murder case. The court said she had no standing as a reporter, thus no constitutional press protections.

Though now released, Leggett may appeal her case to the U.S. Supreme Court for a landmark resolution. Dallas attorney Bob Lathan, a First Amendment specialist, recently told the American Journalism Review that the amendment exists "not for the protection of a journalist but to protect and guarantee that the public has a free flow of information."

To put it in Nashville terms, Is a musician who plays for free not still a musician? Of course he is. And a writer who writes for free is still entitled to his or her First Amendment protections.

Why do I care? Why should you? Because I self-publish this site, I write and post strong criticisms of various powerful elected officials, and I am not paid for it. And one day a judge could decide that Nashville, too, is exempt from broad First Amendment rights and that such rights are only for "paid" journalists.

There is a solution, however. In the long term, we must elect politicians and judges that actually respect both the state and federal constitutions. In the short term, you can drop a buck or three in the Amazon tip jar in the right-hand column, or support this site by shopping sales tax-free at my online store, which will mean I am a "paid" journalist with full First Amendment rights. Even to a Seattle judge.

You can express your undying scorn of the stupid judge by sending him emails by clicking here. It's your First Amendment right, you know. I also suggest you cc your email to the Seattle Weekly.

For another take on the story, click here.

Thanks to InstaPundit for spotting the Seattle Weekly story.

D-Day: Tomorrow or Thursday.
Speaking of elected officials and respect for constitutional rights, sometime in the next 48 hours Tennessee's representatives likely will vote on the proposed unconstitutional income tax. Then we will know which of our representatives actually meant their oath to uphold the constitution - and which didn't. Pray that at least 50 of them actually meant the oath that they took. For the alternative - a legislature that deems itself sovreign over the people instead of subject to the constitution and servant to the people - is too awful and dangerous to contemplate. They work for us, but think we work for them. And if they pass an income tax, we do.

Naifeh's Bad Plan
How bad is Speaker Jimmy Naifeh's income tax plan? In a word, horrible. The Naifeh proposal doesn't just create an unconstitutional 4.5 percent tax in personal income, it creates a confusing mish-mash of sales tax rules that will confuse retailers and taxpayers alike, and require the goverment to add 300 new bureacrats in order to collect taxes and regulate such mundane things as what kinds of edibles are "food" and which are not. Plus, it offers a "cap" on tax revenue that is both a mirage and an invitation to a second massive tax increase as early as next year, and include a hidden method of "stealth" tax increases that will hit every taxpayer with tax bills that rise even though their effective incomes don't. That will a flood of revenue to fund uncontrolled government growth - at the expense of the people and the economy of Tennessee.

For more on the weird mishmash of sales taxes proposed in the Naifeh plan, click here. And remember this: every year, lobbyists will be pressuring the legislature to exempt items from the tax or remove the exemption from other items, which practically guarantees endless confusion for shoppers and merchants alike. Which is one reason the state will need 300 more employees just as efficient and friendly as those down at the DMV - to enforce the ever-changing tax regulations and perform what will have to be endless audits of merhants in order to collect the complex and confusing tax.

The Naifeh legislation also proposes to "cap" tax revenue at 6 percent of total personal income in Tennessee, but that's a trick. Here's why: the state takes only 4.6 percent now, and even if the Naifeh bill passes, revenue will total only around 5.5 percent of personal income in the state. That leaves the Legislature room to adopt another massive tax increase.

Additionally, the cap itself is a bad joke. It can be raised or repealed by a simply majority vote of the the legislature - if there are 50 House members and 17 senators who want to raise taxes above the cap, there would be enough votes to raise the cap, or eliminate it. Naifeh offers taxpayers the mirage of protection while providing government a fat new pipe into taxpayers' wallets.

That fat pipe is going to carry a revenue gusher because of "bracket creep." Naifeh's tax has some standard deductions - the first $15,000 in income for a single person, the first $30,00 for a couple, and $1,500 per child would not be taxed. But the standard deductions are not indexed to rise with inflation. The net result of that will be workers who get annual raises to offset inflation's corrosive effect on their paycheck will see more and more of their income above the tax threshold. They will pay more to the Tennessee Revenue Service solely because of inflation, even if their pay increase barely keeps up with inflation. Because of "bracket creep," the government will get richer at the expense of hard-working Tennesseans. The Naifeh tax will pump money out of taxpayers' pockets at an ever-increasing rate even if they never raise the tax rate.

For more on bracket creep, click here to read my final column in Nashville City Paper, and related commentary posted here and here.

Hilleary's Letter
U.S. Rep. Van Hilleary, who is running for governor, has sent a letter to all 132 state representatives and state senators, urging them to listen to the will of the people of Tennessee and reject the proposed Income Tax. According to this Tennessean article, that has rankled Speaker Jimmy Naifeh, who is trying to line up 50 votes for his proposed Income Tax plan. The Tennessean apparently couldn't be bothered to provide on its web site the full text of Hilleary's letter, or even a link to it. Here's a link to a recent statement Hilleary issued on the subject, and a recent Chattanooga Times-Free Press editorial critical of Naifeh's push to enact the income tax in secret.

Twisting the Truth
State Attorney General Paul Summers, who believes a state income tax is constitutional despite three unanimous state Supreme Court rulings to the contrary, is now espousing a novel theory that past legislatures have already, in essence, enacted an income tax. Summers, working ever harder to twist the law hard enough to make the income tax fit, told House members last week, according to this Nashville City Paper article that the Supreme Court wrongly held the income tax to be unconstitutional because of flawed research, and that the legislature has already passing de facto income taxes. Accordnig to Summers, the state's 6 percent business excise tax is really an income tax on the corporate “person.”

While Summers is cooking up bizarre semantics to try to fool legislators into believing the income tax is constitutional, he has ducked the issue of Article 11, Section 9.

Now, Sections 28 or 29 of Article 2 of the state constitution are the sections that list the taxes the legislature is permitted to levy. But, as explained more fully in a post below, Article 11, Section 9 explicitly says the General Assembly is "not authorized" to allow empower municipalities to levy certain kinds of taxes that the General Assembly itself is not authorized to levy under Artcle 2, Sections 28-29. The legislature may not grant any munipality the power to tax "incomes, estates, or inheritances, or to impose any other tax not authorized."

A few months ago, I was a guest on Teddy Bart's Roundtable radio show with AG Summers. After the show ended, I asked him about Article 11, Section 9. His first reaction was a pause - he seemed unaware that such specific and declaratory language was in the constitution. I asked him to research it and send me an email explaining how, in light of Article 11, Section 9, the income tax could be considered constitutional. He said he would, and wrote my email address on his legal pad. I never heard from him. Too busy cooking up bizarre legal notions about corporate "persons," I guess.

Blog Power
Go to Google. Do a search for the phrase 'TennCare audit'. HobbsOnline is No. 6 in the search results. Google's "relevance" rankings give added weight to sites that are linked to more often, so thanks to all out there who have helped ensure that anyone searching the web for information on the latest audit of TennCare will find this site's essay and links to other sources.

Pathetic, Incoherent Lies
While the Tennessean continues to publish the increasingly pathetic and incoherent rantings of Larry Daughtrey, at least they let the part-time conservative Tim Chavez edit a page of conservative viewpoints (though safely ghetto-ized on one page once a week, safely away from the traditional editorial and op-ed pages.)

Chavez' column this week on the dishonesty that permeates the tactics of the pro-income tax side is a good one. But for a real example of that dishonesty, just check out Daughtrey's column in the same paper.

The increasingly bitter Daughtrey has written another long piece of fiction masquerading as a political commentary in the Sunday Tennessean. Daughtrey's half-truths and misrepresentations in the piece are numerous - including claiming conservatives have not put forth credible budget-cutting proposals. They have; the legislative leadership merely chose to ignore them.

But Daughtrey's weirdest moment comes when he claims that opinions by the current and some previous Attorneys General that an income tax is constitutional "are legally binding on the legislature unless a court overturns them." Binding? The opinion certainly does not require the legislature to adopt a state income tax. And, obviously, it does not prohibit them from adopting an income tax. So in what manner is the opinion "binding"? Answer: none at all.

Daughtrey's assertion that an AG's opinion is binding "unless a court overturns them" is laughable, especially when you consider that is those attorney general's opinions that are seeking to overturn three separate and unanimous rulings by the state Supreme Court that a general tax on income is not constitutional.

Those Supreme Court rulings themselves would seem to be quite binding on legislators, and more so than a mere Attorney General's opinion, because legislature swore an oath to uphold the state constitution, and that constitution establishes the Supreme Court as higher on the legal food chain than a mere attorney general. Even without those rulings, the constitution itself says in Article 11, Section 9, that the General Assembly is "not authorized" to levy a state income tax. That section prohibits the legislature from granting any munipality "the power to tax incomes, estates, or inheritances, or to impose any other tax not authorized" by Sections 28 or 29 of Article 2 of the state constitution, which is the section that lists the taxes the legislature is permitted to levy.

Article 11, Section 9 serves as a commentary on Article 2, Sections 28-39. While the tax language in Article 2 lists the taxes the legislature is allowed to levy, its silence on other forms of taxes (including the income tax) has been interpreted as prohibitive of non-listed taxes. The pro-income tax side argues that the silence is not prohibitive, but Article 11, Section 9, says in simple langauge that the omission of the income tax from Article 2, Sections 28-29 in fact IS prohibitive.

Daughtrey has written numerous columns claiming an income tax is constitutional. I can't recall a one of them that ever explained how that could be true in light of Article 11, Section 9. The Attorney General's opinion doesn't touch it, either.

Tennessean shoots foot with 2nd Amendment editorial
Occasionally, this site looks at other issues than the state budget and taxes. This is one of those times.

The Tennessean has again attacked your constitutional rights. The paper has published an historically inaccurate editorial on John Ashcroft and the Second Amendment, similar to editorials published in other papers, such as the The Los Angeles Times and the Minneapolis Star-Tribune. Like those editorials, it makes a reference to the government's position on the issue over the last 60, refers to an unnamed Supreme Court decision from the 1930s, and makes a personal attack on Attorney General John Ashcroft. The editorial in fact reflects like a mirror the views of the anti-gun Violence Policy Center, which claims the Second Amendment right to bear arms is a right of state-controlled militias, not a general right of individual citizens. Ashcroft disagrees.

This op-ed in the Wall Street Journal, written by Eugene Volokh, a professor of constitutional law at UCLA, is much more balanced and accurate.

An excerpt of Volokh's piece: From the late 1700s to the early 1900s, the individual-rights view of the Second Amendment was the nearly unquestioned interpretation. Virtually no court or commentator of that era reasoned that the Second Amendment protects the rights of states. Attorney General Ashcroft and Solicitor General Olson are hardly promoting their personal views. They're promoting the views of the Framers, and of the American legal system throughout most of American history.

More from Volokh: The individual-rights view is also in good modern company. In the 1986 Firearms Owners' Protection Act, Congress specifically reaffirmed "the right of the citizens to keep and bear arms." In 1960, those noted conservatives (or is it "radicals"?) John F. Kennedy and Hubert H. Humphrey both asserted their support for the right of each citizen to keep and bear arms. Some leading liberal constitutional scholars today likewise take this view.

The Tennessean editorial misrepresented the 1939 Supreme Court in U.S. v. Miller. Yes, the court ruled that the Second Amendment right to keep and bear arms is a right for the militia. But, as Volokh notes in his piece, the court also said that the word "militia" refers to "all males physically capable of acting in concert for the common defense," and said these men "were expected to appear bearing arms supplied by themselves." The Tennessean doesn't tell you that. Neither did the editorials in the LA Times or the Minneapolis Star-Tribune.

But it's important - because the 1939 U.S. v. Miller case actually affirms the view that Second Amendment is a personal right. John Ashcroft is right. The Tennessean - as is so often the case - is wrong.

As University of Tennessee law professor Glenn Reynolds writes, you'd never know from the Times, Star-Tribune or Tennessean editorial that "Ashcroft's view is shared by lots of leading constitutional scholars, that the Supreme Court has repeatedly treated the Second Amendment as an individual right, or that the Framers thought individual gun ownership was important."

Comparing Volokh's WSJ op-ed to the Tennessean's tripe is illuminating. Not only does Volokh provide a more historically complete and accurate view, his op-ed comes with footnotes to his sources. The Tennessean's doesn't. And, while the Tennessean backs all sorts of gun control legislation, its support for the view that the Second Amendment doesn't recognize an individual's right to keep and bear arms is actually counter-productive to its pro-gun-control agenda. Why? As the astute Volokh points out, if the courts and Congress were to clearly support the individual-right interpretation of the Second Amendment, pro-gun activists would no longer be able to use the slippery-slope argument to generate opposition to reasonable gun regulations, and debate over the issue might be marked by compromise rather than polarization. But you don't get that depth of analysis from the Tennessean's typically knee-jerk liberal editorials.

For more on the subject of the Second Amendment, click here.

The Tennessean's editorial mirrored points made by the anti-gun Violence Policy Center in this letter to Solicitor General Ted Olson opposing Ashcroft's individual-right stance. Glenn Reynolds provides an excellent dissection of how liberal advocacy groups' press releases become mainstream media's liberal editorial dogma, often without attribution, here.

Coming soon...
I'm currently digesting Speaker Jimmy Naifeh's ludicrous income tax plan. Anyone got any spare Tums? When I finish, I'll post a review and analysis of the bill, in hopes of helping kill it. Death to the Income Tax!

Editor's Notes
My regular column is no longer running in Nashville City Paper. Here's why: I had questions about whether the paper was falling behind on payment to me for writing the column and, after two successive monthly checks were for less than I was promised, I emailed the paper for the upteenth time requesting a full accounting. The publisher, Brian Brown, responded by canceling the column. Now, the City Paper is just like the Tennessean - it offers no local weekly consistently conservative political column. ...

In other developments, thanks to Nashville Post magazine for mentioning me and my work with Corante.com, in its story on web logs, or "blogs." The story is available in the May 2002 print edition of Nashville Post. For those of you who don't know, I edit the "Internet" section of Corante.com, a daily web log of tech news. ...

And finally, HobbsOnline is a reader-supported site. If you wish to support the work of this site, you have two options for doing so. You may make a donation through the Amazon donations link in the right-hand column. Or you can shop for a variety of personal care and nutritional products via an online store whose link is provided in the about this site section in the right-hand column. Thanks for your support.

On Point
Sen. Tim Burchett, R-Knoxville, nails it in comments published in the May 9 Tennessean. Burchett remarks that the forecast of sluggish revenue growth next fiscal year still doesn't mean we need a state income tax. Burchett correctly fingers the real cause of the state's budget shortfalls: its profligate spending during the 1990s revenue boom.

''We should have been storing some of our wheat at harvest time so during a low harvest we would have resources,'' Burchett said.

He's right. But the Sundquist administration has made a habit of spending not just every dollar of expected revenue, but every unexpected dollar of surplus revenue too, while also raiding a variety of reserve funds in order to pay for its annual billion-dollar budget increases. Remember - when Sundquist took office, the state budget was a mere $13 billion. Just years ago, it was $16.4 billion. Now, Sundquist has laid a $20.4 billion Faberge egg of a budget on the table, and the truth is the people of Tennessee can't afford it.

The truth also is, however, that Don Sundquist doesn't care if you can't afford it. Jimmy Naifeh doesn't care if you can't afford it. Sen. Bob Rochelle doesn't care if you can't afford it. And not one of them cares that what they are trying to do violates the state constitution and three unanimous state Supreme Court rulings.

They only care about imposing a 4.5% tax on your income..

Why? It's just as Sundquist himself once said: the purpose of an income tax is to fund "the endless expansion of government."

... For more on the latest revenue forecasts, see the next two posts.

The Revenue Liars
The State Funding Board has issued its "forecast" of revenue for the next fiscal year, and it is a dire forecast indeed. The Funding Board says revenue from the existing tax code will grow 1.8% to 2.3% in the fiscal year that starts July 1. Pro-income tax legislators, naturally, are saying this is one more reason we need a big tax increase in the form of "tax reform" that includes a state income tax. Pro-income tax newspapers like the Tennessean are playing along with headlines like "State revenue projections take nosedive."

Some facts you need to know about the State Funding Board:
1. It is an executive-branch board, of which the governor is a member.
2. The Funding Board only hears from three economists hand-picked by the administration, which routinely ignores other in-state academic economists at state universities who have equal or better qualifications but also oppose the income tax.
3. The Funding Board's projections are never right.
4. The Funding Board' projections were routinely well below actual revenues, right up until Gov. Sundquist started pushing for an income tax.
5. Low projections served the administration's purpose in the early years of the administration because every dollar of revenue above the projected revenue was a surplus - which the administration declared to be "unbudgeted dollars" and promptly spent without getting the Legislature to pass an appropriations law (in apparent violation of the state constitution, but that's another issue for another time.)
6. For the last two years, the Funding Board - whose agenda and meetings are controlled by Sundquist's finance commissioner, has issued high projections and revenue came in lower, producing an artificial "shortfall" that the administration was able to use to argue for a tax increaase, preferably in the form of an income tax.
7. The new ultra-low projections - which predict revenue growth much lower history indicates is likely in the first year after a recession - were issued just before the Legislature is to consider Speaker Jimmy Naifeh's income tax plan. A low projection now serves the administration's ongoing efforts to create the appearance of a crisis so dire that an income tax is the only answer.

But the truth is, revenue will grow next year, and with some judicious use of budget cuts and an overhaul of TennCare, which a recent audit found wasted roughly half a billion dollars last year, the state can continue to function even if the revenue projections are dead-on accurate. What the state can't afford, however, is $900 million in new spending proposed by the administration.

Some of the spending the administration proposes includes a $112.9 million increase in the state's "rainy day" reserve fund, which makes no sense because the current tight budget is precisely the kind of situation for which the reserve fund should be spent, and a large pay raise for state employees.

The amount of the pay raise (in the first year) is roughly the same as two percentage points of revenue growth. Given that the State Funding Board's projection is most probably low by a significant margin, the smart course of policy would be to cancel the pay raise and instead include in the budget a provision that any growth above 2.3% to 4.3% - roughly $155 million in surplus revenue - will be dedicated to an end-of-the-year bonus for state employees.

But such ideas aren't on the table right now. An income tax is - and the State Funding Board, undeniably an arm of the pro-income tax administration, has issued what appears to be a politically-motivated forecast of very low revenue just in time for its announcement to have maximum political impact.

Revenue & Reality
Tennessee's latest monthly revenue data is out and it is a shocker. Not for what it says, but for what it ignores. And that's the shocking fact that if the legislature had approved the Sundquist Administration's proposed spending for this current fiscal year, the state would be facing a shortfall of over $1 billion, rather than the projected $450 million shortfall that can be largely dealt with by using state reserve funds intended for such situations.

The latest revenue data also indicates that the state's dependence on the sales tax as its primary source of revenue is NOT the cause of the state's deficits.

Proponents of the income tax say the sales tax doesn't "grow" with the economy. But that's a lie.

The truth is, sales tax revenue has grown even during the economic downturn, and with Tennessee and the nation now entering a new period of economic strength, the sales tax too is poised to generate strong revenue growth.

To make sales tax revenue look worse than it really is, the administration continues to compare actual revenue to the "estimates" on which the budget is based. Therein lies a big indicator of the true nature of the state's budget crisis.

Here is the truth about the sales tax: Revenue is up slightly over the previous fiscal year for the period of August through April, $3.466 billion compared to $3.461 billion. For the month of April, sales tax revenue rose nearly 1 percent.

But last year the Legislature adopted a budget that estimated sales tax revenue would grow about 3 percent this year, based on advice from the administration-controlled State Funding Board. And the administration, remember, proposed a budget that required even more revenue than we have now - some $600 million more. Wisely, the legislature rejected that request. Unwisely, the legislature chose to pass a budget that used one-time funds to fund about $400 million worth of recurring programs. Had they simply reduced the budget by that amount and used only recurring funds for recurring progams, the current budget would be balanced and we would not be facing a shortfall.

It is the administration's desire to spend too much that causes shortfalls, deficits and budget crises, not the sales tax, which has proven to be most reliable major source of revenue the state has.

Historically, the state has enjoyed annual revenue growth from the sales tax in the 6 percent to 7 percent range - which is sufficient to handle the rising cost of government due to rising population and inflation. The same inflation that increases the cost of government also increases the cost of products on which people pay the sales tax, meaning they pay more sales taxes. If government learned to live within its means, those increased revenues would help government absorb the impact of inflation on its budget.

Tennessee's budget problem is not that it's people are taxed too little, but that its governor and legislature spend too much.

Budget Fact:
In fiscal year 2000-01, the state spent $8,940,400 to give grants to assist 3,694 low-income nursing home residents with paying for nursing home care. This year, the Nursing Home Resident Grant Assistance Program will provide ZERO grants and spend no money.

But the tax that was created to fund it remains in effect - and will raise an estimated $102.5 million this year. The nursing home bed tax - $2,225 per bed per year - raised $115.9 million in fiscal 2001. For several years, the tax raised the cost of nursing home care by more than $100 million, and then the state gave about a tenth of that money to a small group of nursing home residents to help them absorb the higher cost of care created by the state. Such is the logic of giveaway government.

The state used the rest of the money from the tax to attract matching federal dollars that went to subsidize nursing homes - but the feds informed the Sundquist administration repeatedly over several years that such a tax-and-repay scheme was illegal. The state kept on doing it until this year, scamming Medicaid out of around $450 million. The administration's proposed budget includes setting aside $100 million for "federal contingent liability." That money is meant to partially repay the federal government for the money the Sundquist administration knowingly got via an illegal scheme.

So, follow the illogicality of it all: at first, the Sundquist administration deliberately raises the cost of nursing home care via a stiff tax, then helps a few nursing home residents pay the tax. Now it just raises the cost of nursing home care by $102.5 million this year, and hopes Uncle Sam will take $100 million to repay a $450 million debt.

With crack fiscal management like that, no wonder the state budget is so screwed up.

The budget is online here in a PDF file.

The site design has been updated to make it easier to read. Check back often as I'll be posting regularly and adding new links. If you have any comments email them to me at bhhobbs@comcast.net.

Halt! TennCare doesn't care who goes there!
The most interesting thing in this Tennessean story about TennCare having halted checking enrollee's eligibility (again) is the paragraph that drives home, once again, that the Sundquist administration and TennCare do not really want to limit the program only to people who are eligible for it.

Comments the Tennessean: "TennCare checking, or reverification, is supposed to take place once a year. Enrollees are required to meet face-to-face with eligibility counselors who are to check everything from income to access to private insurance. In December, TennCare, under court order, began a new round of rechecking eligibility."

Fact: For most of its existence, the TennCare Bureau has not bothered to check on the eligibility of enrollees, despite federal regulations that require it.

Fact: The most recent audit of TennCare found that more than 130,000 people are receiving TennCare benefits despite having given TennCare only a P.O. box rather than a street address, even though TennCare rules require the agency to reject applicants who don't have a Tennessee street address. Most of the enrollees with only P.O. boxes are thought to be non-residents who have attached themselves leech-like to the generous benefits of TennCare. Cost to taxpayers in just fiscal year 2001: $465 million.

My Latest Column...
...is online here at the Nashville City Paper.

Letter
Rep. Chris Clem, R-Lookout Mountain, comments that a proposed constitutional amendment that would require a "super-majority" rather than a smaller simple majority to raise tax rates is beset with problems.

Says Clem:

First, the income tax would be immediate. Any consitutional amendment would take 4 years and may die anywhere along the way. In other words, we are to accept an income tax today in return for Speaker Naifeh's word that this constitutional amendment requiring 60% vote will eventually pass. This amendment must pass the House and Senate this year by 50%. Then pass the House and Senate in the following term by 2/3rd's. Then it must wait another 2 years then be placed on the November ballet in 2006.

Another problem is that this constitutional amendment only applies to sales tax and income tax. It does not apply to franchise taxes, use taxes, excise taxes, business taxes, car taxes, property taxes or any other tax that is not a sales or income tax.

Rep. Clem - a laywer and a CPA - is exactly right. This "cap" we're being offered is less than is advertised, and not a sure bet. Chances are it won't ever appear on the ballot - and the income tax would already be in place. What is needed is a Taxpayers Bill of Rights amendment similar to the one in the Colorado constitution, which requires government to return surplus revenues via tax cuts rather than spend it, and gives voters the final say over proposed tax rate increases or new taxes - at the state and LOCAL level - via a referendum.

One other strategic problem with the proposed constitutional cap on income tax rates: The income tax, which is currently not authorized by the state Constitution, may not pass this year. If it doesn't, but the proposed constitional cap amendment was placed on the ballot in 2006 and approved by voters, it would set forth the method the Legislature would follow to increase the tax - and that amendment no doubt would be interpreted as constitutional language authorizing an income tax.

Bracket Creep
Anz.com, an online financial dictionary, contends "bracket creep" occurs in progressive tax systems, i.e. an income tax with multiple tax brackets.

Anz.com says bracket creep "occurs as companies compensate employees for rising inflation by giving them pay increases, which in turn push the tax-paying employees into higher income tax brackets. The pattern depends on the existence of a progressive system of tax, in which marginal tax rates rise with increasing income. The result is increased tax collections by the government without any change to tax regulations."

But does bracket creep occur in a flat-rate tax? Absolutely yes it does. Even a flat-rate tax like the one proposed by Speaker Naifeh has two tax brackets - 4.5% and zero percent. As one's income is increased to offset inflation, more of one's income will be in the higher of Naifeh's two proposed tax brackets, while the remaining income taxed at zero percent will have less purchasing power.

That's a stealth tax increase - and a threat to the financial health of every Tennessean.

Budget Fact:
Under the Sundquist administration's proposed budget, the state higher education system will spend $17 million building "Greek Row" for Middle Tennessee State University - and $9.25 million doing the same at Eastern Tennessee State University. A "Greek Row," as you know, is a development of fraternity and sorority houses.

Need proof? Read page A-141 of the budget, which is online here in a PDF file.

And they say the budget can't be cut.