The Logical Choice
With State Sen. Marsha Blackburn poised to move on to the U.S. Congress, the logical choice to succeed Blackburn in the state Senate is Williamson County businessman Jim Bryson, who co-authored the Williamson County GOP's resolution denouncing the proposed income tax in 1999.
"Jimmy Naifeh and Bob Rochelle have refused to acknowledge that we have a spending, not a revenue problem," Bryson said in press release from his campaign after the legislature rejected an income tax but passed a billion-dollar tax increase. "If my business or family household does not have the money, then we do not spend it. Our government needs to have similar spending restraints. As state senator I will lead the fight in making sure the government lives within its monetary means."
You can read TaxFreeTennessee.com's interview with Bryson by clicking here.
"I was chairman of the Williamson County Republican Party Policy Committee when we drafted and sent to the Governor the first County Resolution against a state income tax back in 1999," Bryson remarks in that interview, adding that the income tax "was a bad idea then and it's a bad idea now."
Bryson says Tennessee has a spending problem, not a revenue problem, and correctly notes that Tennessee "has not obeyed its own laws in the budgeting process," including failing to follow state law requiring a zero-based budgeting process.
Steaming hot commentary on journalism, Tennessee, politics, economics, the war and more...
- Name:Bill Hobbs
- Location:Nashville, Tennessee, United States
The Logical Choice
Blackburn Suports Tax Reform!
But don't worry: it's the good kind of tax reform - accelerating the Bush tax cuts and making them permanent. State Sen. Marsha Blackburn's website lays out her views on taxes and other issues at the national level. No wonder her candidacy for the U.S. Congress has been endorsed by the Club for Growth, and the American Conservative Union.
"Marsha Blackburn has stood firmly for the free market, low-tax principles on which the Club for Growth was founded," says Stephen Moore, founder and president of the 6,000-member Club for Growth. "Our members in Tennessee and around the country are convinced that Marsha Blackburn is the real Reagan Republican in this race. We feel confident she will fight for low taxes and government reform as hard in Washington, as she has in Tennessee."
Also, the The East Shelby Review endorsed Blackburn saying she has an independent streak that will serve Tennessee well if she is elected to Congress: "We need a congressperson who will stand up to lobbyists, special interest groups and even the President if need be. Marsha’s four years of service in the Tennessee Senate stand as a testament that she will never be a rubber stamp for President Bush or anyone else."
The Clinton Recession
Was the recession of 2001 President Clinton's fault? Consider the following: New data from the U.S. Commerce Department shows the economic slump started in January 2001 and lasted through September 2001. George Bush was sworn in Jan. 20, 2001, but his first budget (and, therefore, his economic policies including the 10-year tax cut plan) did not take effect until October 2001. That means the entire 9-month slump fell within the final 9 months of the economic policies of the Clinton-Gore administration. It was Clinton's recession. Bush's tax cut is one reason it ended after just 9 months. Electing senators and congressman who will work to make the Bush tax cuts permanent is critical to strengthening the economic recovery. The legislative records of U.S. Rep Ed Bryant and State Sen. Marsha Blackburn indicate they are most likely to support making the Bush tax cuts permanent if they are elected to the U.S. Senate and Congress from the Seventh District of Tennessee, respectively.
Bias Watch: Tennessean Spins the Bond Rating
The Tennessean seeks to maintain the fiction that the bond rating agencies want Tennessee to adopt an income tax to repair the alleged "structural deficit" in the state's tax code, with this editorial today.
1. Tennessee achieved its high bond rating in the 1980s and kept it well into the 1990s despite not having an income tax.
2. As conclusively demonstrated on this web site a few days ago, there is no correlation between a high bond rating and having a state income tax - indeed, many states with income taxes have lower bond ratings, while states without income taxes have the same or better bond ratings.
3. The primary cause of a falling bond rating is the use of one-time money to pay for recurring annual expenses. The new budget doesn't do that. However, the new budget was balanced with a tax increase rather than reducing the rapid growth of spending, hence the bond rating agencies know Tennessee state government still has not developed the fiscal discipline to restrain spending to match revenue growth.
4. When you hear a politician use the phrase "structural deficit," just remember that there is no such thing - deficits are not caused by "structural" defects in the tax code, but by politicians who want to spend more than they have. Tennessee's overspending - and its resulting budget shortfalls and falling bond rating - is the fault of legislators and governors who have repeatedly failed to restrain their spending to live within the constitutional growth limit since 1984. That's the year one Rep. Jim Henry sponsored the first bill to authorize exceeding the cap.
The easiest route to restoring our state's bond rating is to restrain spending to match available revenue. That's it. No new tax or tax increase is needed. As long as the legislature doesn't spend a penny more than the tax code brings in - and as long as governors don't propose budgets that spend a billion more than we have - Tennessee's bond rating will improve.
For more the on the real truth about the state's bond rating, see:
Poof Goes the Structural Deficit - with links to a Memphis weblog's dissection of a Memphis Commercial-Appeal story on the topic.
Also see Bias Watch: AP Misrepresents S&P. The full text of S&P's memo on Tennessee's bond rating - which doesn't mention the income tax, let alone endorse it - is published below this July 19 item.
Your Tax Code At Work
Amazing but true: The Tennessean actually published this story explaining how the Tennessee General Assembly has put in place an onerous system of taxation and regulation designed solely to protect the business interests of wine and liquor industry middlemen, while harming the economic interests of millions of average Tennessee residents. The system - protected by generous contributions given to legislators by lobbyists for the middlemen - drives up prices you must pay for wine and other alcoholic beverages while limiting your choices and your freedom to buy direct from out-of-state wineries.
Tennessee is one of about three dozen states that prohibit out-of-state wineries from shipping direct to retail customers in Tennessee. Such protectionist laws in all likelihood violate the Commerce Clause of the U.S. Constitution, which forbids states from regulating interstate commerce. Such protectionist laws involving the sale of wine are also among the laws hampering the growth of e-commerce - and costing U.S. consumers an estimated $15 billion a year in higher prices for such things as wine, real estate, cars and caskets, according to the Progressive Policy Institute.
The Federal Trade Commission recently announced it will investigate such laws. E-Commerce Times reports here the FTC study whether individual states' legislative and regulatory actions are hampering the growth of e-commerce, and will host a three-day workshop in October where representatives of several industries that face such regulations and restrictions can state their case. Giga Information Group analyst Andrew Bartels told E-Commerce Times that the FTC will learn of "a patchwork of specific state laws governing industries, particularly those like alcohol sales and real estate" that are "undoubtedly a hindrance to interstate commerce." Other industries likely to be looked at by the FTC: online wine sales, online real estate, online automobile sales, online education, healthcare, pharmaceutical sales and online casket sales.
Any legitimate study of Tennessee's tax code with an eye toward positive reform would include a plan to end the regulations that have made Tennessee's wine and liquor wholesalers a government-protected cartel, and open the market so that Tennesseans can benefit from more choice and rational pricing.
Poof Goes the Structural Deficit
The promising new Memphis weblog Half-Bakered takes apart the Memphis Commercial-Appeal's dismal "reporting" on recent moves by Fitch, Moody's and Standard & Poor's on Tennessee's credit rating, in this posting. It seems the pros don't think Tennessee has a "structural deficit" after all, and that the current sales tax-dependent system will do just fine as the economy recovers. Remember - it's the spenders in the Sundquist administration and their allies in the General Assembly who claim sales tax revenue doesn't grow with the economy. But in the past year sales tax revenue has grown slightly in Tennessee, while states dependent on the income tax have seen actual and very steep declines in their revenue.
The Tennessean wants Jim Henry to get the GOP nomination for governor (and then lose to Phil Bredesen in the general election). So it's no wonder their Sunday story on the race is all about whether or not Henry can catch Hilleary, and it's no wonder the story is peppered with negative quotes and comments about Hilleary.
Now We Know the Truth
For three years, Gov. Sundquist has maintained that he only reluctantly came to support an income tax after his initial proposal for business tax reform, announced in his Feb. 8, 1999, State of the State address, was rejected by the General Assembly.
You remember his famous statement in that speech: "All an income tax does is raise the tax burden on Tennesseans and create a way to finance the easy and endless expansion of government. Tennessee does not need a state income tax."
Well... now we know that even as he stood in the well of the House and made that famous declaration, a seeming renewal of his campaign pledge to oppose the income tax, the governor was secretly planning to propose an income tax.
We know it because the governor has admitted, in this interview with WSMV -TV, that he in fact decided to propose an income tax during the Christmas holidays of 1998 - almost two months before his state of the state address.
With just six months remaining in office, governor Don Sundquist says his biggest disappointment was having to ask for an income tax. ... He said he reached the hard decision after his staff came to him Christmas of 1998 and told him the state's tax structure was collapsing.
The online version of the WSMV story has a typo later in the story in which the fateful income tax decision was made during the Christmas holidays of 1999 - but history shows that Sundquist was already backing the income tax plan proposed by Sen. Bob Rochelle in the fall of 1999. He even called a special session on tax reform so the Legislature could pass it.
History also now shows that, far from being dragged kicking and screaming to an income tax only after his business tax reform plan was rejected, Gov. Sundquist actually planned to go for an income tax from the get-go. He made the decision only a few weeks after being re-elected on an anti-income tax pledge. It's obvious now that the business tax reform plan was merely designed to provide him political cover so he could claim he only reluctantly supported the income tax because the legislature rejected his better plan.
UPDATE: Is the state's tax structure "collapsing," as Sundquist claims? This fiscal year, despite the lingering effects of an economic slump, total tax collections through the first 11 months of the fiscal year are down a miniscule. 0.15% from last fiscal year - and last fiscal year's total revenues were the highest in state history. Collapsing? Not then. Not now. Not at all.
Whom Do You Trust?
Gov. Don Sundquist announced today that he plans to vote for Jim Henry in the GOP primary, shocking no one. Then he gratuitously added that he thinks Van Hilleary would be a "horrible" governor.
"Trust me," Sundquist didn't say, "I know first-hand what a horrible governor looks like!"
If Sundquist's assessment is right, Hilleary would still be a better governor than Sundquist himself has been. But Sundquist is wrong, of course, because Van Hilleary not only is right on the issues, he has one crucial thing Sundquist lacks: credibility. And another: the courage to keep his promises.
No one suspects Hilleary is lying when he says he is against the income tax. Think about that for a second. No one suspects Hilleary is lying when he says he is against the income tax.
Can that be said of any other major candidate in the race in either party? No.
The other significant Republican candidate, Jim Henry, is suspect on the issue because, well, because he signed a form listing himself as a paid lobbyist "for the income tax" for then-Gov. Ned McWherter. And on the related issue of controlling spending, Henry's legislative record includes repeatedly helping the Legislature pass bills authorizing it to exceed the state constitution's spending-growth cap.
In Henry's favor, it must be said, he does now say he believes the income tax is unconstitutional. And if he were to be elected and then kept his word and sought a constitutional convention on tax reform, our side could use that convention to kill the IT permanently and mark the grave with a Taxpayers' Bill of Rights capping both allowable revenue growth and tax rates and giving voters the final say over increasing either.
As for the Democrats, Randy Nichols is openly for the income tax.
Charles Smith says all options are on the table. When a politician facing a controversial issue says "all options are on the table," you can bet the ranch he favors the one most people oppose, but lacks the courage to say so. You can bet the ranch Charles Smith is for the income tax.
And Phil Bredesen says the income tax isn't the "right solution" for the current budget problem, and accurately fingers the problem as being one of the state increasing spending too fast. But Bredesen has never issued a "Hell No!" statement ruling it out in all eventualities and, to my knowledge, never said he thinks the income tax is unconstitutional.
Alone among the five, Hilleary is not suspected by anyone of lying when he says he is against the income tax. And he favors amending the state constitution with a Taxpayers' Bill of Rights.
No wonder Don Sundquist doesn't like him.
It must tough to be a lame-duck governor with a limited legacy of gubernatorial achievement highlighted mainly by runaway spending, a notorious "Read My Lips"-level lie, a failed three-year grab for an unconstitutional income tax, and what may become a steady drip-drip-drip of investigations into various alleged ethical improprieties, sweetheart contracts for friends and mismanagement of state funds.
No wonder Sundquist is lashing out at Hilleary, who appears to be the kind of man who stands on principle, keeps his word, and has the kind of straight-arrow Boy Scout image one imagines he'll strive hard to not sully by letting his "close personal friends" make millions off no-bid state contracts because he is governor.
Sundquist may think that is "horrible."
Somebody Oughta Investigate...
...whether or not Gov. Don Sundquist has the constitutional authority to establish a department of homeland security and appoint someone to run it. He's done it all by executive order, but does the governor truly have the authority to do so without legislative approval? You have your assignment. Inquiring minds want to know.
Here's some good news from west Tennessee, courtesy of The Tennessean.
Sundquist Defends Trip
Gov. Don Sundquist reacts to a TV report examining his close ties to businessmen who do business with the state, in this Tennessean apologia on his behalf. Says the governor, Phil Williams is wrong wrong wrong about the free trip he took to the Caribbean during the climactic days of the budget battle at Legislative Plaza.
"It wasn't the Virgin Islands," Sundquist said. "It was the Bahamas."
Should be interesting to see how he responds tomorrow to news last night that his administration has repeatedly given sweetheart multi-million dollar contracts to companies owned by buddies of the governor, without bidding. One company, Workforce Strategies, which provides garden-variety job training services for the unemployed, was deemed to be uniquely experienced for the job, though it had been in business just six days. Soon after an official with Sundquist's Department of Labor helped Workforce Strategies get the contract, she quit and took a job - and an ownership share - in the company.
"Experience," apparently, is just another word for "friendship" in the Sundquist administration.
Inside the Government Shut Down
State Sen. Ron Ramsey explains why good news about the state's public education system - we're near the top in SAT scores, for example - gets little press in this Kingsport Times-News story giving an insider look at the budget debate.
"The plan was to continue to talk bad about Tennessee and how we're needing more money. The ultimate plan was to keep the government shut down as long as possible and close down state parks again and keep schools from opening in August to where people will finally scream ‘Uncle' and we get an income tax. There was a cynical plan and the middle-ground approach that we took kept that from happening," says Ramsey, a Blountville Republican.
The $360 million Deception
It's been said - often - that the state government of Tennessee loses $360 million a year in sales tax revenue because of people shopping on the Internet. It's been said so often that some people actually believe it. People like the editorial boards of most or all of the state's major newspapers, who repeat the figure (or something like it) like a mantra when ever they espouse the need for "tax reform" (a/k/a an income tax). People like Gov. Don Sundquist and his finance commissioner Warren Neel, who trumpet the "lost" revenue when they argue for an income tax. People like UT economics professor Bill Fox, an income tax cheerleader and Sundquist administration lackey who authored a "study" alleging such lost revenue - but whose track record on forecasting the state's economy and its revenue growth is laughably bad.
But $360 million in lost sales tax revenue due to online shopping is just not true. Do the math. Every 6 cents of sales tax revenue means someone somewhere spent a dollar on a taxed item. So $360 million in sales tax revenue equates to $6 billion in sales. There are 5.5 million people in Tennessee - so $6 billion in sales is $1,090.90 per capita. Since, we assume, children under the age of 18 aren't shopping online much - it, after all, takes a credit card to do so - we'll use the accepted measure of a "typical family of four." The typical family of four in Tennessee would have to be spending $4,363.60 per year on the Internet in order for the claim of $360 million in lost revenue to be true.
Do you spend that much online? If you do, I wouldn't mind if you spent some of it at my online store - where, incidentally, your purchases are exempt from the Tennessee's sales tax. (Profits from the store help support the ongoing operation of this site.)
But of course I know you don't spend $1,090 a year buying stuff over the Internet, and your family doesn't spend $4,363 over the 'Net - nor do Tennesseans as a whole spend $6 billion per year online, and the state doesn't lose $360 million in sales tax revenue because of online shopping. It's a bogus number - a scare tactic that is just another part of the Big Lie strategy that those who favor the income tax have used in their quest to pass an income tax. The bad thing is Jim Henry and Van Hilleary appear to have bought it.
Tennessean Gets It Wrong
The Tennessean asserts today that "local governments will pay an estimated $3.76 million for construction, trains and stations for the Nashville-to-Lebanon commuter rail line."
That is not true.
Governments never pay for anything. Taxpayers do.
And this boondoggle is going to cost taxpayers $37.6 million - $40 million or more when you toss in the inevitable cost overruns - and that's only to build the train, not to operate it. No urban mass transit system in the country operates withoug ongoing government subsidies - usually large subsidies. This boondoggle will be costing taxpayers millions of dollars every year to operate, carry very few riders and have no significant effect on road traffic congestion. Does The Tennessean care? Apparently not.
But The Tennessean at least reveals the truly bad nature of government fiscal planning when it admits that "the eastern leg of the commuter rail was chosen as the first of five regional routes because officials thought it would be the cheapest and the easiest to finalize politically."
Note that such concerns as potential ridership and ongoing operational costs are not mentioned - only that we could build it cheap and, more important, get the politicians to agree to spend the money. Because in The Tennessean's world, taxpayers don't matter, only governments.
A Friend in a High Place
Thanks to Sen. Curtis Person for including on his official website a link to HobbsOnline. Thanks also to Sen. Person for having the courage to question the administration's accounting. I'll have more soon on the vague, misleading answers he's received to his recent well-publicized letter.
Jim Henry Favors New Tax?
Speaking on the Phil Valentine show Monday on WLAC 1510-AM, Republican gubernatorial candidate Jim Henry said he wanted Tennessee to be able to tax Internet purchases, which he said would bring the state another $360 million a year. Let's be clear on what candidate Henry is saying: 1. He wants $360 million more of your money. 2. He favors imposing a new tax.
Online purchases are not currently taxed because of the U.S. Supreme Court's 1992 Quill decision, in which the high court ruled an online or catalog/mail-order seller that does not have a physical presence in your state cannot be forced to collect sales taxes for your state on your purchases. The decision is rooted in the Commerce Clause of the federal constitution, which forbids states from regulating commerce across state lines, including levying taxes and tariffs. As a result, you do not owe Tennessee sales taxes on anything you buy online if the seller doesn’t have a physical presence here.
So, if ABC Widgets was based in, say, California, but has a store in Tennessee and you buy a widget via their catalog, telephone or web site, they would collect the tax. But if XYZ Gadgets, based in Texas, doesn't have a store or other physical presence in the state, they are not required to collect the sales tax.
Henry wants the U.S. Congress to overturn the Supreme Court, ignore the Commerce Clause, and authorize Tennessee to levy its sales tax on sellers in 49 states where Tennessee provides no services - and let those 49 states tax the people of Tennessee to pay for services in California, Alaska, Hawaii, Florida, Arkansas, Maine and 43 other states.
There is a solution that doesn't require givign 49 other states the ability to tax you. If online purchases were legally defined as occurring in the home state of the seller, a Tennessean shopping at a Texas-based Web store would pay Texas sales tax and states would compete to have low sales tax rates in order to encourage growth of home-based e-commerce businesses. The "solution" Henry favors will instead do great harm: It will encourage states to raise and standardize their tax rates and end the very free market competition envisioned by the authors of the Commerce Clause.
Incidentally, Henry isn't the only candidate favoring such a big tax increase on the people of Tennessee. Van Hilleary has endorsed the same new tax - and spoken eagerly of the revenue it could bring in. So did Don Sundquist.
TennCare No Bargain
Vanderbilt University Medical Center's Harry Jacobson obliterates the notion that TennCare is a healthy, cost-effective healthcare program.
Nothing Became Him Like His Leaving
Yeah, it's like, more than two weeks old, but, like, you gotta laugh at Half-Bakered's take on Sen. Bob Rochelle quitting in, like, the middle of his reelection campaign...
Little Bobby Rochelle got mad and left today, taking his ball with him. Says a witness, "He was, like, all mad and stuff 'cause he wanted to play this one game and wouldn't let us play unless it was by his rules and stuff. We were all, like, 'nuh uh,' and he was all, like, 'uh huh!' So there was, like, a big fight and stuff and he got all mad and grabbed the ball and ran home. Crybaby." Interviewed at his home, his mother says he's in his room crying and she's going to talk to the mothers of the other boys.
TaxFreeTennessee.com artfully dissects Jim Henry's political weakness in pushing for a Colorado-style tax-and-spending limitation amendment for the Tennessee constitution in an essay, Busting the Cap II: Jim Henry, Lamar Alexander's Water Carrier published on their site today. (Click here.)
Their essay relies solely on public records and shows that then-Rep. Jim Henry repeatedly voted to exceed the spending allowed by the state's current (but weak) cap on the growth of spending. In fact, Henry sponsored the bill the first time the spending cap was ever exceeded.
Excellent work, guys.
For more on the TABOR amendment, scroll down or use the archives and start with my July 4 essay, We Won. Now What? and also read several more recent entries having to do with the Colorado plan and Tennessee's ineffective current spending cap. The essay Busted Cap outlines just how ineffective our current spending cap is.
In the Oven
I highly recommend you check out a new Memphis web log, Half-Bakered, which aims to expose the bias and errors published in the Memphis media - especially the Commercial-Appeal and the Memphis Flyer, with some political commentary tossed in. The names refers to prominent and ultra-liberal Memphis political commentator Jackson Baker (hence the name "Half-Bakered").
The author of Half-Bakered - who goes only by the name "m" - writes "we are still new and trying to keep up with the demands of near-daily blogging. And we are still trying to find our voice and style. We would also like to acknowledge a debt. We discovered your blog through TaxFreeTennessee, during the past couple of years and the budget/income tax debate. Our efforts are modelled, in no small part, on your example. Thank you!"
Half-Bakered already offers some good stuff, including this obliteration of a recent column by C-A "reporter" Bartholomew Sullivan, who I also take on in this recent essay.
Also, because one good link deserves another... here's Half-Bakered's comments on the Colorado plan.
Welcome to the fray, m.
Thanks Again, Tim
For the second time in two weeks, columnist Tim Chavez has mentioned this site in his Sunday "Equal Time" column. Chavez in his column today noted this column's role in pushing the top two Republican gubernatorial candidates into endorsing a "Taxpayers Bill of Rights" amendment for the Tennessee constitution similar to the one in place in Colorado. For more on the Colorado plan, which caps both taxes and spending and gives voters a stronger voice in fiscal decisions, scroll down or use the archives links to the right to find my July 4 essay We Won. Now What? and also more recent essays and information about the Colorado plan. You may also want to read "Busted Cap," an essay reporting how Tennessee's current constitutional cap on the growth of government spending has been ineffective, and how legislators this year exceeded the spending cap by a record $771 million.
Bias Watch: AP Misrepresents S&P
For three years now, the pro-income tax press has pushed the false notion that the cause for Tennessee's falling bond rating is its lack of an income tax, and the only cure is creation of an income tax. This Associated Press story continues that misrepresentation.
The AP writer, Karin Miller, asserts that Standard & Poor's "long-term outlook on the state is negative because lawmakers did not change the structure of the state's revenue system."
Not true. In fact, Tennessee achieved S&P's highest possible bond rating before Gov. Sundquist took office even though the state had no income tax for the simple reason that spending was in line with revenue. Period. That's all the rating agencies care about long term.
Read the AP story carefully and you'll see that it's pro-income tax spin comes from the reporter accepting at face value the comments of a single pro-income tax state official who puts his own pro-income tax spin on S&P's rating.
Here s what S&P said, according to the AP story:
The negative outlook was based on the "reserves and financial cushion that have been weakened and uncertainty surrounding the ability of the 1 percent sales tax increase to provide sufficient resources to balance budgets in fiscal 2004 and beyond."
And S&P said this: "Also of concern is the ongoing political inertia that has impaired the state's ability to address its financial challenges in a timely manner."
Nothing in that indicates S&P cares whether or not Tennessee adopts a state income tax. In fact, it is understandable that S&P would have concerns about the sales tax increase providing "sufficient resources to balance budgets in fiscal 2004 and beyond," considering that the sales tax increase is temporary and scheduled to expire July 1, 2003.
The legislature balanced this year's budget with the temporary tax increase, but a long-term plan to bring spending in line with revenues has not yet been approved. The political inertia S&P cites is the fact that a minority of legislators desire a new and unconstitutional income tax to fund the endless expansion of government, while some others want to spend-spend-spend but don't want an income tax, and still others want the legislature to consider reducing spending to live within the state's abundant existing revenue.
So where does the AP writer get the notion to put a pro-income tax spin on S&P's comments? From state Comptroller John Morgan, who has been an unwavering ally in the Sundquist/Naifeh/Rochelle income tax push.
Morgan characterized the S&P's report as "bad news" that "unless we address the structural deficit that our system generates over time, another downgrade is likely down the road."
Just remember - those are Morgan's words, not Standard & Poor's - words that tricked a gullible AP reporter into spinning the S&P report into saying something it doesn't really say.
Below are some excerpts of a column I wrote a year ago for the Nashville City Paper while working as a policy analyst for the Tennessee Institute for Public Policy, refuting the Sundquist administration's claim that only an income tax would restore Tennessee's credit ratings.
There is no causal connection between the existence of a state income tax and a high bond rating. Let me repeat that: having or not having a state income tax has nothing to do with our state’s bond rating.
Tennessee achieved a very high AAA bond rating during the administration of Lamar Alexander - and we had no income tax. We maintained it through the Ned Ray McWherter years and the first five years of the Sundquist administration - without an income tax.
Oregon has an income tax but no sales tax, and its AA bond rating is the same as Tennessee, which has a sales tax but no income tax.
Louisiana, which has both income and sales taxes plus a lottery and revenue from casino gaming, has an A bond rating, the lowest rating of any state (and only recently upgraded from A-).
New Hampshire - which has no state income tax (and no state sales tax either) - has a AA+ bond rating, which is higher than Tennessee.
The state of Washington’s bond rating held steady at AA+ last year, despite predictions that a citizen tax revolt would hurt the state's bond rating, reported The Seattle Times. S&P reviewed the state’s rating and left it unchanged after a voter referendum passed and eliminated $750 million a year from state coffers.
Clearly, a state’s tax structure has no causal relationship to its bond rating.
Tennessee’s bond rating only began to drop after the Sundquist Administration started using non-recurring funds - such as raiding 'rainy day' reserve funds - to pay for recurring programs. In public finance, that’s a no-no that will hurt the bond rating every time.
Standard & Poor’s raised (Louisiana's) bond rating to A - still the lowest in the nation - after the state focused on cutting spending to match revenues.
S&P said the rating upgrade reflects Louisiana’s "commitment, over the past five years, to improve its underlying financial structure. The capacity for the state to react and contain fiscal deficits is much improved by efforts to match expenditures to revenues, build a rainy day fund, and greatly reduce its debt burden. While economic weakness is expected to periodically draw Louisiana into financial crunches, including current and future-year forecasts of revenue shortfalls, it is expected that newly institutionalized budget discipline will prevail to identify appropriate levels of budgetary cuts to maintain structural budget integrity."
The bottom line: You should ignore John Morgan's deceptive spin and the words of the AP's gullible, sloppy reporter Karin Miller. Tennessee can restore its high bond rating by reducing the rate of spending growth to match recurring revenue without resorting to an income tax.
For the full City Paper column, Click Here.
For the full text of the Standard & Poor's report, read the item below.
What S&P Really Said
Here is the full text of Standard & Poor's July 12 ratings update on Tennessee's General Obligation (GO) bonds.
Tennessee's GO Bond Rating Removed From CreditWatch; 'AA' Rating Affirmed, Outlook Negative
Analyst: Kenneth A Gear, Washington D.C. (1) 202-383-3540; Alexander M Fraser, Dallas (1) 214-871-1406
WASHINGTON, D.C. (Standard & Poor's) July 12, 2002-Standard & Poor's said it affirmed its double-'A' rating on Tennessee's outstanding GO bonds and removed the rating from CreditWatch, where it was placed Jan. 25, 2002, reflecting the increase in new revenues that effectively balance the fiscal 2003 budget. The outlook has been changed to negative.
Standard & Poor's also affirmed its single-'A-1'-plus rating on Tennessee's outstanding general obligation commercial paper series A and B and its double-'A'-minus rating on Tennessee State Veteran Homes Board's outstanding appropriation debt, issued for Tennessee.
The negative outlook is based on reserves and financial cushion that have been weakened and uncertainty surrounding the ability of the 1% sales tax increase to provide sufficient resources to balance budgets in fiscal 2004 and beyond. Also of concern is the ongoing political inertia that has impaired the state's ability to address its financial challenges in a timely manner.
"The legislature's July 4 adoption of a revenue-raising bill and a balanced 2003 budget provides some near-term comfort," said credit analyst Kenneth Gear. "The budget includes $923.2 million of new tax revenues, a projected $600.3 million of which is from a 1% increase in the state sales tax to 7%. The local portion of taxes adds 2.48%. The increase in revenue eliminates a projected $800 million revenue gap," added Mr. Gear.
Recent financial operations were best characterized by the state Legislature's inability to eliminate a fiscal imbalance that has required the state to use onetime revenues, along with spending cuts, to balance its budgets in fiscals 1997-2002. A weakened economy and weak revenue collections created a $475 million shortfall at fiscal year-end 2002. The decline in sales tax collections is the primary culprit in the shortfall, which could increase depending on June revenue collections. The fiscal 2002 shortfall would be larger if not for the availability and use of about $413.5 million, of which $244 million was an accumulated balance and $170 million was tobacco settlement money paid in fiscal 2002.
The state's cupboard will be relatively bare to start fiscal 2003, with just $135 million in reserve or cushion remaining, including $85 million in the revenue stabilization fund and $50 million in a federal contingency fund. These reserves could decline if June collections are weaker than anticipated, and more has to be appropriated to close the gap. This thin reserve position represents about 0.02% of budgeted fiscal 2003 revenues.
Although the state's reserves are at very low levels in 2003, Standard & Poor's expectation is that an economic recovery, coupled with continued efforts to control expenditures, will prevent the state's finances from deteriorating further. Future revenue-raising actions are limited barring use of an unused revenue source.
Approximately $1.1 billion of debt is affected.
- end S&P report -
Note: Nothing in that report says the state must adopt an income tax to restore its bond rating. Indeed, the report's most significant criticism is that the legislature used "one-time revenues" and "spending cuts" to balance the budgets in five successive fiscal years (FY 1997-2002). We're not sure what spending cuts S&P is referring to - Tennessee's spending has grown by around $1 billion a year since 1997 – but blame for using one-time revenues properly rests primarily on Gov. Sundquist, who proposed spending increases large enough to require the use of one-time funds and reserves to balance them.
Media Praise for Colorado's TABOR Plan
Some comments from Colorado newspapers regarding the Taxpayer Bill of Rights:
Commenting on a similar proposed tax limitation amendment on the ballot in Washington state, the Rocky Mountain News said this on Nov. 7, 1999:
"Maybe it's time that opponents looked on the bright side. If they will give their new tax initiative a chance, they might find it actually strengthens the political process, rather than destroys it. That's clearly what has happened in Colorado since the passage of Tabor. Here, shifting responsibility for taxes from politicians to the public hasn't resulted in automatic rejection of every spending plan.
"But while Tabor hasn't straitjacketed government, it has accomplished a number of good things. It has heightened interest in elections and government policy; it has given public officials mandates they otherwise would have lacked; it has shrunk voters' sense of helplessness over the use of their hard-earned taxes; and last, but hardly least, it has strengthened the fiscal responsibility of state and local government."
"TABOR passed, of course, and the world did not end. In fact, the past eight years have probably been the most prosperous period in Colorado history." - Rocky Mountain News, Sept. 24, 2000.
The Colorado Plan
Now that more than one Tennessee gubernatorial candidate has endorsed amending the Tennessee constitution with a provision similar to Colorado's Taxpayer Bill of Rights, below is a list of resources related to Colorado's TABOR amendment:
The TABOR Amendment: Learning To Live Within Colorado's Tax & Spending Limits
By Dr. Barry Poulson, professor of economics at the University of Colorado at Boulder, Senior Fellow with the Independence Institute, and a member of the Colorado Commission on Taxation. Also available as a PDF file. Nov. 2001.
Triggering tax rebates
By Michael New, research assistant and data analyst with the Center for Representative Government at the Cato Institute. Source: Washington Times, April 2, 2002.
Limiting Government through Direct Democracy: The Case of State Tax and Expenditure Limitations
By Michael New, research assistant and data analyst with the Center for Representative Government at the Cato Institute. The full Cato study on the effectiveness of tax and expenditure limitations on state spending growth. Source: Cato Institute, December 2001. Click for the Executive Summary.
We still need fiscal discipline
By Dr. Barry Poulson, professor of economics at the University of Colorado at Boulder, Senior Fellow with the Independence Institute, and a member of the Colorado Commission on Taxation. Source: June 23, 2002, Denver Post.
A poll last summer found strong support among Coloradoans for the Taxpayer Bill of Rights.
Source: Ciruli Associates
Hilleary Favors Colorado-Style Taxpayer Protections
In response to the item below regarding Republican gubernatorial candidate Jim Henry endorsing the concept of a Taxpayer's Bill of Rights for Tennessee similar to Colorado's. I received an email from Frank Cagle, a spokesman for the Van Hilleary for Governor campaign, indicating that Hilleary "absolutely favors the Colorado plan and expects to push it hard against Bredesen in the general election." Cagle says such a proposal "will be part of a package of taxpayer protections" Hilleary plans to offer.
Where's Phil on the issue?
Colorado Plan Gets an Endorsement
Tennessee Republican gubernatorial candidate Jim Henry, who has said he favors holding a constitutional convention on taxes, today endorsed the concept of a Taxpayer Bill of Rights similar to the one in place in the Colorado. Henry, speaking on Phil Valentine's talk show on WLAC 1510 AM, said he believes an income tax violates the state constitution. Asked if he would support a constitutional amendment like Colorado's, Henry said yes, and added that he approves of how Colorado's Taxpayer Bill of Rights causes a governor to have to "sell" his programs to the public. Colorado's constitution caps the rate of growth of government spending to the rate of population growth plus inflation, and requires surplus revenue be returned to taxpayers via tax cuts or direct rebates. If legislators wish to spend the surplus, they may ask voters' permission in a referendum. The Colorado plan also requires referendum approval to raise taxes or increase tax rates - and all provisions of the amendment apply to both the state and local governments.
Colorado's TABOR, as it is called, has proven to be an effective tool to reign in government spending and tax increases in Colorado, and helped make government more accountable to the people of that state while also involving people more directly in the debate over taxing and spending. It has improved the political debate and political participation in the state while also making goverment more accountable, says the Rocky Mountain News - which a decade ago had urged voters to reject the proposed amendment.
TABOR also helps government better manage its finances long-term. Research by a University of Colorado economist found the amendment helps "smooth" the state's finances, so that it doesn't over-spend during economic booms and then face large shortfalls during an economic slowdown.
For more on the Colorado plan, scroll down to read Colorado Shows the Way, Busting the Cap, and We Won, Now What? (or click on the links).
Colorado Shows the Way
The Wall Street Journal offers an editorial today explaining how Colorado's "Taxpayer Bill of Rights" saved that state from the big budget crises that hit most states, including Tennessee. In fact, Coloradoans got $927 million in tax rebates this year while Tennesseans got a $933 million tax increase.
The WSJ comments:
As the nation's governors meet in Boise, Idaho to share tales of woe about a slower economy, it's a good time to ask why some states have bigger budget problems than others. California is a debacle, for example, with a $23 billion deficit and Governor Gray Davis scrounging for revenue. But in Colorado this year, Governor Bill Owens delivered a balanced budget and $927 million in tax rebates.
What gives? Both states rode the 1990s technology boom, both saw large immigration and both enjoyed a wealth of new tax revenue. The main difference is that California spent the fruits of its boom and more, while Colorado didn't. There's a lesson here for voters now listening to politicians pleading to raise taxes.
In Colorado, government spending was restrained by a 1993 constitutional amendment called the Taxpayer Bill of Rights. The law requires voter approval for any tax increases and limits increases in state spending to inflation plus population growth. This meant that even in the fat years, state politicians couldn't spend all of their revenue windfall.
In other words, they couldn't use an economic boom to build a permanently larger government. Per capita general fund expenditures during Governor Owens's four-year tenure grew by a total of just 8%. And Colorado has returned to taxpayers more than $3 billion in surplus revenue in rebates and tax cuts since 1997.
California, by contrast, spent like drunken sailors, if that isn't unfair to shore leave. The state has the most liberal legislature west of Sweden, and Governor Davis never really tried to hold it back. Per capita general fund expenditures in the Davis era have jumped 31%, and now the politicians refuse to give up any of that government in the lean years.
Mr. Davis failed to meet a July 1 deadline for a new budget, and current negotiations in Sacramento involve more than $2 billion in tax hikes, including a 63-cent-a-pack increase in the cigarette tax and a doubling of vehicle licensing fees. Last month Republicans fought off a plan to raise high-income tax brackets to 10% and 11% from 9.3%. But everyone believes tax hikes are certain if Mr. Davis wins re-election in November.
Nationwide, alas, California is more common than Colorado, with states facing a combined $40 billion to $50 billion deficit. The American Legislative Exchange Council's Mid-Year Review on State Budget Policy notes that 15 states have enacted major tax increases in the current legislative season, and 11 more are on the verge. Tax increases by those 26 states total $14 billion; those same states increased spending over the past decade by $125 billion.
Among the worst tax-hike culprits, North Carolina has raised sales and income taxes by $1 billion, having increased spending by $7 billion over the past decade. Kansas saw spending shoot up by more than 33% from 1992 to 2000; now it's raising taxes on sales, cigarettes, computer software and even death (estates). Ohio has enacted $700 million in tax increases to cover up a $10 billion expansion in government since 1990. Tennessee voters have been saved from a new income tax only by a talk-radio revolt, though they're still getting hit with $933 million in new sales levies. New Jersey and Massachusetts voters are just getting hit, period.
All of this naturally has consequences for future economic growth. A forthcoming study by the Cato Institute says that during the 1990s the 10 states with the highest tax burden grew at half the rate of the 10 states with the lowest taxes. Personal income grew by 40% in the low-tax states but only by 25% in the high tax states. Job growth was 28% in the low-tax states, 13% in the high-tax states.
The larger lesson here is that the best defense against future tax hikes is an automatic political restraint on spending. Raising taxes can be made more difficult by requiring a "supermajority" of two-thirds or three-fifths of state legislators to raise taxes, or better yet a state-wide referendum.
A constitutional limitation like Colorado's is probably the best of all. The spending interests will pitch a fit, and Governor Owens tells us that in the early 1990s they predicted Armageddon in his state too. Instead Colorado grew even faster than most of the country, and now it is better prepared to ride out the technology recession.
By the way, the Colorado model is also good politics. Mr. Owens, a Republican in a conservative state, has gaudy approval ratings despite recession and is headed toward a comfortable re-election. Mr. Davis, a Democrat in a liberal state, is heading toward Newt Gingrich-levels of disapproval and is in big re-election trouble, despite a $40 million campaign warchest.
With just one month of revenue still to be counted, Tennessee's revenue shortfall for the just-ended fiscal year is well below the dire forecasts the Sundquist administration trumpeted in its failed attempt to scare legislators into backing a state income tax. While the administration claimed the state faced a shortfall of as much as $480 million, the shortfall after 11 months stands at just $390.5 million.
According to the Tennessee Department of Finance and Administration, the state collected $704.7 million in taxes in June - just $147,000 less than in June of last year, a statistically insignificant difference of 0.02%. It was, however, $26.5 million less than the administration had hoped to receive to fund its planned spending.
The all-important sales tax showed growth in June of nearly $3 million, compared to June 2001, and for the first 11 months of the fiscal year year sales tax revenue is up $3.6 million over last year, as the sales tax continues to mirror the state's economy.
Total tax collections for the first 11 months of the fiscal year are still on pace to achieve the second-highest revenue total in state history, behind only last year's record. Tax collections through June were $181.3 million below the first 11 months of the prior fiscal year, a decrease of approximately 2.5 percent.
For Governors, It's Never The Spending
Read this New York Times story today and note that the states' governors don't blame their fiscal problems on overspending. Oh no - it is always the fault of too little revenue. Note also that they're already laying the groundwork for next year's fiscal crisis:
Governors said they believed that the main cause of the shortfalls was the problems on Wall Street. They said they were worried that the continued turmoil, driven by reports of corporate abuses, would make things even worse.
Translation: Next year, when we need another tax increase, please blame Wall Street, not our profligate spending.
But at least Kentucky Gov. Paul Patton accepts some of the blame for his state's budget gap this year: "We anticipated and built a budget based on a recovery beginning earlier this year, January or February, and blooming into a full-blown recovery. That obviously has not happened yet."
Translation: We passed a budget we couldn't afford, hoping the revenue would come in to pay for it. Hmmm. Sounds like Tennessee Gov. Don Sundquist, doesn't it?
Thanks to Tim Chavez of The Tennessean, who quoted extensively from my July 10 essay "Busting the Cap" (below) in his Sunday "Equal Time" column. Chavez's columns are a refreshing change from the usual liberal tribe that infests the pages published at 1100 Broadway. Tripe such as Larry Daughtrey's Sunday comparison of state Sen. Bob "work is a privilege, not a right" Rochelle to Roman Senator Cincinnatus, who "twice left his farm ... to serve as defender and dictator of the empire until his work was done. Then he gave up power and went home..." The point of Daughtrey's ode to Rochelle: the Lebanon liberal is to be honored for voluntarily giving up power having served the people honorably lo these 20 years.
Excuse me while I barf.
The truth is Rochelle isn't giving up his seat voluntarily - he is quitting like a coward. Rochelle would have loved to hold his seat and dictate an income tax be levied on the people of Tennessee, but the polls show his aggressive support for an unconstitutional state income tax has made him very likely to lose a re-election campaign that he had already begun. The truth is, Rochelle looked forward eagerly to being there to help guide the endless expansion of government that such a tax would enable the legislature to afford. No, Rochelle is no Cincinnatus. He is not leaving voluntarily. He was about to be kicked out, so instead he is slinking out the back.
But if the tax had passed, he'd be trying to stick around to spend all that extra tax money.
The Tennessean editorializes today in favor of the new tax study commission giving legislators "backbone" to "face up to their responsibilities" - which is Tennessean-speak for "subvert the state constitution and impose an unconstitutional income tax." The editorial continues to push the myth that sales tax revenue is "dwindling" and that somehow the sales tax would be a better revenue-producer in an economic slump than would an income tax.
Let's review the facts:
Tennessee sales tax is NOT dwindling. In fact, it is UP this year, despite the economic slump. Meanwhile states that rely on an income tax are seeing actual declines in revenue from that form of tax. In fact, according to a survey report from the National Conference of State Legislatures, states with income taxes are suffering big shorftalls. According to the survey, individual income tax payments to states fell 21 percent in April and for the first four months of 2002, state income tax collections were down 14 percent from the same period last year.
The same would be happening to Tennessee if we'd adopted a state income tax three years ago, when Gov. Sundquist first proposed it. Instead, according to the Tennessee Department of Finance & Administration, sales tax revenue in Tennessee is UP slightly this fiscal year, despite the economic slump. An income tax would make Tennessee's budget problems worse. The Tennessean's editorial ignores the NCSL report, though readers of this site learned about it a month ago.
Incidentally, sales tax revenue is not only up for this year, it increases every year like clockwork, with its growth mirroring the health of the state's economy. Sales tax revenue in the just-completed fiscal year will have grown about 1 percent - pretty good, given the stagnant economy.
Tennessee’s sales tax mirrors the state’s economy quite well. In fact, since 1990, sales tax revenue has outgrown the state’s economy. Some facts: The sales tax - then 5.5% - brough in $2.23 billion in fiscal year 1989-90. That same tax rate would have brought in 80 percent more money, $4.04 billion, in fiscal year 2000. According to the U.S. Census' Bureau of Economic per capita income grew 56 percent in Tennessee from calendar year 1990 to 2000, while total personal income grew 78 percent and gross state product grew a little over 80 percent. Undeniably, the sales tax keeps pace with Tennessee’s economy - and please note that all that increased revenue does not include extra revenue from the 1992 increase in the sales tax rate to 6 percent.
I made a similar point a year ago in a column I wrote for Nashville City Paper while working for the Tennessee Institute for Public Policy.
Revenues are growing more slowly this year because so is the economy. That’s true elasticity. What the politicians want is a tax that grows fast even when the economy doesn’t - an income tax, especially one that has graduated rates and standard deductions that aren't indexed to inflation, guaranteeing that cost-of-living raises push taxpayers into higher tax brackets, automatically increasing their tax bill without a vote.
Rather than mislead readers with comments about "dwindling" sales, The Tennessean would serve taxpayers better by focusing its editorial fire on the built-in bias of the tax study commission. All of its members will be appointed by a state official who favors the income tax. The commission has yet to meet yet it is virtually certain to recommend an income tax. The people of Tennessee, overwhelmingly opposed to the income tax, will reject the commission's report. And we'll be no closer to addressing the state's real fiscal problem: government spending is growing much faster than the state's economy. As long as that continues, no tax code will be able to keep up.
Back on Bart
Here's a link to the archived audio of the Thursday, July 11, edition of the Teddy Bart's Round Table radio show, on which I appeared along with Nashville attorney David Raybin and political commentator Pat Nolan. I'm scheduled to appear on the show next on Wednesday, July 17. The show airs on WAMB-AM 1160, from 7-9 a.m.
Busting the Cap
Tennessee's constitution has had a provision capping the growth of government spending since 1978, when an amendment was approved that limits annual spending increases to the rate of economic growth. However, the cap has a major flaw:
The legislature can break the cap by a simple majority vote.
It is the loophole that has swallowed the law - and billions of extra taxpayer dollars
Since the 1984-85 fiscal year, spending exceeded the cap nine times, by a total of just under $2.2 billion. The cap was exceeded twice during the Gov. Lamar Alexander years - by $446.1 million in FY 1984-85, and $100 million in FY 1986-87, and five times under Gov. Ned McWherter - $101 million in FY 1988-89, $74 million in FY 1989-90, a whopping $703.1 million in FY 1991-92, $450 million in FY 1992-93. Gov Sundquist has been just as irresponsible, proposing budgets that ultimately lead the legislature to over-spend the cap by $55 million in FY 1996-97, and $270 million in FY 1999-2000.
But this year sets a new record. Gov. Sundquist's budget request was cut some $500 million, yet he still has the dubious honor of having signed into law the single largest spending in excess of the cap in history. It goes along along with the largest budget in state history and the largest tax increase in state history - neither of which were anywhere near as large as the self-styled fiscal conservative had sought.)
As required by the constitution, the legislature passed a one-page law setting forth the amount by which the cap would be exceeded. That law, passed July 4, says: "The index of appropriations from state tax revenues for the 2002-2003 fiscal year may exceed the index of estimated growth in the state's economy by seven hundred seventy-one million dollars ($771,000,000) or nine and twenty-seven hundredths percent (9.27%).
That's $771 million in just the first year. Because each year's budget increase is built on top of the previous year's budget, exceeding the cap by $771 million this year means next year's budget will also be $771 million higher than it would have been if the constitutional spending cap had been respected. And the next year's budget. And the one after that, etc...
Over the next 10 years, this year's busted spending cap will cost Tennessee taxpayers an astonishing $7.71 BILLION dollars in additional taxes, unless something is done.
Tennesseans will not be protected from "the endless expansion of government" (to quote Don Sunquist) until the current spending cap is replaced with a more effective cap similar to the Taxpayers Bill of Rights in the Colorado state constitution. For more on that, see my recent essay, "We Won, Now What?" by clicking here or scrolling down.
The one-page law allowing the state to exceed the cap is here in a 1-page PDF file. You'll need Adobe Acrobat Reader software.
Avoid the Sales Tax!
The sales tax increase exempts many food items - but not your daily multi-vitamin or dietary supplements. So, while your groceries remain subject to the lower 6% sales tax, under the Cooper plan vitamins and dietary supplements will be taxed at 7%.
OR YOU CAN AVOID THE SALES TAX ALTOGETHER by purchasing your dietary supplements at this online store.
Purchases made at this online store are exempt from the Tennessee sales tax because the seller does not have a physical presence in Tennessee - and the U.S. Supreme Court has ruled that states can not impose their sales taxes on out-of-state merchants that don't have a physical presence in the state. That's because of the Commerce Clause in the federal constitution.
On a one-month supply of daily multi-vitamin/multi-mineral supplement, you'll save nearly $2 in state and local sales taxes - on a product comparable in quality and price to high-quality supplements sold at health food stores. An added bonus: a portion of your purchase price at this online store will go to fund the ongoing operation of this website.
On the Radio
I was on Teddy Bart's Round Table radio show this morning, discussing the fallout from the budget battle and defeat of the income tax and will be on again Thursday morning. The show airs on WAMB, 1160 AM, from 7-9. Audio can be heard by going to the radio show's audio archive at The Public Forum or by clicking here.
The Power to Lead is Earned, Not Given
Vanderbilt University political scientist John Geer argues in a Tennessean op-ed today that the limited power of the state's chief executive to veto legislation helped foster the drawn-out budget crisis. In Tennessee, the governor's veto is a paper tiger, taking only a simple majority to override. Greer's point: Gov. Don Sundquist could have lead the state to an income tax if he'd been able to veto non-income tax budgets and made his veto stick.
Greer says: "The veto would have likely stuck, forcing the state legislature to listen to his preferences and opinions. He would have been far more powerful and far more effective. He would have, in other words, been better able to lead. In this recent crisis, Sundquist would have been able to influence the process in significant ways."
But, um, well, perhaps Gov. Sundquist's ineffectiveness wasn't because of his rather limited veto power, but because he simply doesn't know how to be a leader. And perhaps the legislature didn't want to listen to his solution to the crisis because they know his continuous proposals for bid spending increases and new programs were in large measure responsible for creating the crisis.
After all, Gov. Ned Ray McWherter managed to get things done, and so did Gov. Lamar Alexander - and neither of them had a stronger veto than did Don.
But, then, neither Ned Ray nor Lamar! ever resorted to wholesale lying to voters, deliberately spending the state into a crisis, spinning the revenue numbers, in order to ram through a 'solution' no one wanted to a 'crisis' the governor and his administration fabricated. Perhaps the rejection of Sundquist's agenda by majority of Tennesseans - and, therefore, their elected officals, indicates our system worked well indeed.
For a better understanding of why Sundquist and his seemingly powerful allies in the legislature and the media were unable to "lead" the state to an income tax, scroll down and read Glenn Reynold's comments, and his three-year-old essay analyzing the defeat in the November 1999 special session of Gov. Sundquist's income tax.
Note to Readers: If you know John Geer, please let him know I'd be glad to publish on this site his comments on my or Glenn Reynolds' comments.
And thanks to Glenn Reynolds for the link. Turnabout is not only fair play, it's a big part of what makes blogging fun, so here's a link to Reynold's comments on the income tax battle, and a snippet thereof:
"Tennessee's elected leaders have tried to address this problem by sleight-of-hand rather than persuasion. Every time they've done that, they've hurt their own credibility, and every time they've hurt their own credibility, they've reduced their ability to sell it in an aboveboard fashion."
Reynolds is a law professor at the University of Tennessee in Knoxville. Almost three years ago he wrote this essay analyzing the defeat of Gov. Sundquist's income tax proposal in a November 1999 special session of the legislature. Step into the wayback machine... it's worth it. Even almost three years later, Reynolds' piece accurately analyzes the forces and reasons that defeated the income tax. He's also very perceptive about how the income tax battle symbolizes the deteriorating power of Big Media.
"The powers-that-be aren't anymore: Without talk radio and the Internet, Tennessee would probably have an income tax now. The major media were almost all pro-tax, and anti-tax groups got little publicity, most of it negative and condescending. Used to the old way of doing things, state politicians (many of whom barely use e-mail) missed the groundswell of opposition until it was too late. Tax opponents, meanwhile, simply bypassed the traditional gatekeepers in the media and took their case directly to the people. The people responded."
It's good reading, and three years later, nothing has changed - except the power of the alternative media to influence public policy has grown, while the power of Big Media continues to shrink.
This year, the proposoed income tax was backed by the Tennessee's biggest newspapers, its governor, and top leaders in the House and Senate. It had regular cheerleaders in the political press, such as The Tennessean's Larry Daughtrey (see below). The pro-income tax side even had a well-funded lobbying group, the badly misnamed Tennesseans for Fair Taxation.
The opposition had no no well-funded and organized counterpart to the pro-tax lobbying organization and didn't have the backing of the major newspapers. The Tennessee Institute for Public Policy, very involved in the first two years, was absent from the debate this year. (Full disclosure: I worked for TIPP for five months in 2001.) The ragtag opposition had just three small websites (this one, TaxFreeTennessee.com and TnTaxRevolt.org) and their readers, who often took it upon themselves to dig up the truth about Tennessee's budget, taxes, government waste and other relevant facts and pass it on to one or more of those websites, or to a few talk radio hosts.
Yet... and this is the cool part ... we won.
Poor Larry Daughtrey
The latest political commentary from Larry Daughtrey in the Sunday Tennessean, about the demise of the proposed income tax and the passage of a 1 cent sales tax increase instead, is a usual mishmash of class warfare, half-truths, mis-representations and errors.
Daughtrey: "This is still a poor state, with a a per capita income of slightly over $26,000 a year. For Tennesseans living paycheck to paycheck – that's most of us - to feed, clothe and house a family, the sales tax is in reality a tax on income."
Fact: Daughtrey intentionally leaves out a relevant and key fact – per capita income has grown faster in Tennessee than many other states in recent years. Fact is, Tennessee's economic progress, including income measures, greatly surpasses a number of states that have adopted income taxes. Our economy has outperformed Connecticut ever since that state adopted an income tax a decade ago, and any useful comparison of Tennessee with neighboring (and very similar) Kentucky – gross economic output, per capita income, etc. - shows that Tennessee's economy left Kentucky's in the dust starting right after Kentucky imposed a state income tax.
Note also that Daughtrey grammatically includes himself in the group of Tennesseans ("most of us") living paycheck to paycheck.
Fact: The well-paid columnist and his well-paid federal judge wife live in Belle Meade, one of the wealthiest communities in America, where homes go for millions. Daughtrey friend Al Gore recently shelled out over $2 million for a rather modest home in Belle Meade. Given Daughtrey's rather lengthy tenure and high-profile position with The Tennessean - not to mention his Belle Meade address – it's rather unlikely he suffers along anywhere close to $26k per annum. The liberal columnist who fancies himself a champion of the little guy in fact lives in the lap of Belle Meade luxury.
Then Daughtrey comments that the sales tax is unfair because, "as income goes up, less and less of the total goes toward the sales tax as the more prosperous buy services and goods shielded from the tax collectors.
Fact: Technically true, but only because of a myriad of special-interest tax exemptions in the tax code – exemptions Daughtrey has often defended in his income-tax-or-bust commentaries. Daughtrey could have a more equitable tax code if he would support of lowering the sales tax rate and wiping out most of the $2.2 billion worth of exemptions in the code.
It is Daughtrey's summation, however, that really twists reality. He alleges that the income tax opposition was not really against higher taxes, only against taxing the rich.
"The ugliest part, to me," writes Daughtrey, "was the final posturing of the talk-radio puppet masters, their horn-honkers, and their champions in the legislature. In the end, most of them jumped aboard the sales tax bandwagon. It wasn't taxes they opposed, but a tax that might collect a fair share from those at the upper income levels. A 9.75% income tax on working families is just fine, thank you."
Fact: Many of the income tax opposition in fact do oppose higher taxes of any sort – but after three exhausting years of battling the income tax, it was clear that only a partial victory was possible. It had become clear that the legislature was hell-bent on raising taxes and increasing spending, and lacked the courage to put the brakes on Gov. Don Sundquist's excessive spending and billion-dollar-plus annual budget increases.
After three years, the plan to increase the sales tax got the anti-taxers' grudging support for a simple reason: It was the only non-income tax plan that had a chance of passing. Had it failed, the income tax would have been resurrected yet again.
Better, they rationalized, to settle this now with a one-year sales tax increase, and kick it to the next governor and a new legislature - both of which are likely to be more open to real discussion of reducing spending, cracking down on TennCare fraud, and better management of the billions in tax dollars the state already collects.
Daughtrey's column isn't available online as of this posting. When it is, I'll update this post with a link to it.
Tennessean Inadvertently Exposes Own Bias
Remember all that blather in news articles and editorials in The Tennessean about how our sales tax drives people across the border to shop in our neighboring states, and how we had to have an income tax because a higher sales tax would make things even worse? Today, now that the income tax is dead, The Tennessean admits it isn't true.
Clarksville resident Darlene Morrison lives just minutes from the state line, and told The Tennessean this: "It's just not worth it for a few extra cents. After you pay for gas and everything, it balances out."
Just like the Tennessean "balances out" its coverage - publishing pro-income tax propaganda before the vote, and the truth afterwards.
The Chattanooga Times-Free Press reports today that state Sen. Bob Rochelle, chief cheerleader for the unconstitutional income tax, has "suspended" his campaign for re-election in the seventh district. Rochelle, who sought to have working defined as a government-granted "privilege" in Tennessee in order to allow taxing it, is in a tough re-election battle with state Rep. Mae Beavers. It was a battle Rochelle, once considered politically invincible, looked increasingly likely to lose. One also has to wonder if Rochelle's underhanded campaign tactics - getting the Tennessee Bureau of Investigation to probe baseless claims that Beavers doesn't live in the district - have backfired and generated increased support for the anti-tax Beavers.
NYT Covers TN Tax Battle
A good quote from state Sen. Micheal R. Williams in yesterday's New York Times story regarding the end of the Tennessee income tax battle:
"There are 42 states in the nation with budget problems, and most of them have an income tax. So just to say we need one doesn't solve our problem."
The Secret Surplus
State Sen. Curtis Person, a Memphis Republican representing the 1st District, has issued the following letter detailing his growing suspicion that, far from being broke, the state in fact is secreting large surpluses and unspent funds by moving them into asset accounts that can't be touched, and how Sundquist administration officials aren't willing to be very forthcoming about it.
Sen. Person writes:
Recently, I began searching for answers to accounting practices that affect the use of surplus funds. Apparently, many state departments and agencies are taking surpluses at the end of a budget cycle and transferring them on paper into asset accounts. This appears to be a standard practice and once the funds are placed in asset accounts they become investments and do not appear as taxpayer dollars in the budget for the next fiscal year. This is a legal accounting practice; however, I believe any and all surplus funds belong to you, the taxpayers of Tennessee. Surpluses should be returned to the General Fund so they can be used as revenue or rebated to you. They should, at the very least, be applied to budget shortfalls before we ask the citizens of Tennessee to pay more taxes to fund state government.
I have written two letters to our Finance Commissioner, Warren Neel, asking for specific information regarding surplus funds in accounts labeled "Designated Reserves" and "Undesignated Reserves." To date, I have not received satisfactory answers from him. I addressed this matter in a caucus meeting and twice on the floor of the Senate. Each time I asked the members to research the use of these funds. So far, my colleagues have not responded.
I inquired and received a response from John Morgan, our State Comptroller. However, it is vague and claims it will take additional time for his staff to provide answers to my inquiry.
If there is truth to the information I have received regarding the departments and agencies hoarding taxpayer funds to cushion their own excessive spending, I want a thorough, independent audit of our accounting practices with the complete report published for every citizen to read. The lack of responses and specific answers regarding reserve funds causes me a great deal of concern and emphasizes the immediate need to question accounting practices being used by the State of Tennessee.
Now, I am asking you for your help in this matter. Please contact your Senators and State Representatives and ask them to demand answers to the use of surplus and reserve funds that are in reality your money!
I have no idea how much money should be available from these account overages to apply toward funding our State. However, I do know that this money belongs to the taxpayers of Tennessee. If there is any amount at all in any reserve funds anywhere, the right thing to do is to use it wisely as you have entrusted us to do.
Curtis Person, Jr.
My Comments: First, thanks to Gail Keasling for forwarding Sen. Person's letter to me. Second: This letter needs to be spread across Tennessee, via email, fax and this web site. If you would like a copy of the letter in a Word file on Person's legislative letterhead, email me and I'll forward it to you. My email address is in the 'about this site' box in the right side column. Third: if Sen. Person is really expecting honesty and transparency from the Sundquist administration, he's likely to wait a long time.
We've won. Now what?
The income tax is dead. Three years of efforts by the governor and some legislative leaders to impose an unconstitutional income tax on the people of Tennessee have failed. Here's an interesting question: What do we do next?
A one-year increase in a variety of existing taxes balances the state budget and pays for a laundry list of unnecessary spending for this fiscal year and leaves the next governor and legislature to solve for the long-term the conjoined issues of how much the people of Tennessee will be taxed, and how much the government will spend. It also leaves a question for the anti-income tax forces: What do we do now?
For three years, we have been on defense. The Sundquist administration and its pro-big government pro-income tax allies have been on offense, driving down the field in a series of grinding short-yardage plays. They fell perhaps a yard short of the end zone. The good news is the coach – Sundquist - is retiring, while the quarterback, House Speaker Jimmy Naifeh, has endangered the loyalty of his troops with his arrogance and his deceptive tactics. Some are suggesting the back-up get the starting role. Meanwhile, key running back Sen. Bob Rochelle may well be taken down for a loss in his re-election bid.
Soon we'll have a new coach – most likely one who campaigned against the income tax and for living within our means.
It's time our side stop playing defense and devise a plan for an all-out offensive against government waste and high taxes. While we are no longer threatened by an income tax, we remain subject to nearly two dozen various taxes and fees, none of which are capped and all of which combine in most years to produce more revenue than the state has budgeted to spend. And that surplus money – funds the Sundquist administration calls "unbudgeted dollars" – does get spent. The administration spends it without going through the constitutionally mandated process of the legislature passing a law appropriating it. Not only does that violate the state constitution, which says in Article 2, Section 24, "No public money shall be expended except pursuant to appropriations made by law," it sets a higher baseline on which the next fiscal year's budget is built.
Such spending is not the only way government spending is out of control in Tennessee. In the past two decades, the legislature itself has used a legal loophole to pass several budgets exceeding the constitutional limit on spending growth by a combined $2.2 billion in the first year of those budgets. Because each subsequent fiscal year budget is based on a higher baseline, the cumulative affect of all that overspending is billions of dollars in higher spending – and higher taxes for Tennesseans, whose taxes have skyrocketed since 1978, when the spending cap was first put into the constitution.
Unless we go on offense and reverse the trend, Tennessee inexorably will become another high-tax state.
The Fowler plan offered the opportunity for a constitutional convention on taxes. It would have made it much easier to go on offense against the income tax and high taxes in general. Unfortunately it did not pass. That makes it tougher to go on offense. Tennessee also lacks the initiative-and-referendum process, a powerful tool citizens in many mostly western states have to fight back against arrogant, over-reaching government.
But go on offense we must.
Rather than sit back and enjoy the death of the income tax, we must realize that – unless we take control of the game – taxes will rise as legislators and governors of the future decide, like Sundquist did, that it's easier to break a promise than restrain spending.
So … what do we aim for?
Colorado serves as an excellent model. There, a decade ago, voters approved an amendment to their constitution that forbids the government raising taxes, or increasing spending beyond the rate of inflation plus population growth without getting the people's approval via a referendum. It's called the Taxpayers' Bill of Rights, it applies to the state as well as counties and local municipalities, and Tennessee's taxpayers desperately need the same protection.
For Colorado taxpayers, it has meant billion-dollar surpluses have been returned via tax rebates rather than used to fund pork projects and fuel faster spending growth. It also gives them a say in whether tax rates rise or new taxes are imposed. It has also lessened the power of special interests - because proposals to spend excess funds must be crafted to appeal to a majority of the electorate, rather than used to curry favor with special interests and lobbyists. The result is a government that is truly of, by and for the people of Colorado, and a government that must justify its requests to spend more and to reach deeper into people's pockets.
Amazingly, over half the time voters in Colorado have approved the higher spending or taxes the politicians have sought – but always after a spirited public debate in which those who favor the spending or the taxes must explain and defend their plans. It has created a more accountable and more efficient government – and a more engaged people. Tennesseans on the right and the left side of the political spectrum agree those are good goals, and a Colorado-style Taxpayers' Bill of Rights should gain wide acceptance among the people of Tennessee once it is explained to them.
But Tennessee will not have a Taxpayers' Bill of Rights in its constitution unless we first formulate a concrete plan for just such an amendment, explain it to legislators, legislative candidates, gubernatorial candidates and, most importantly, voters, who must be convinced that it is a key issue on which they should support or vote against a given candidate. Such will take a coordinated long-term political effort – a political action committee, well-funded by donations from Tennesseans who believe taxpayers should be protected from the endless upward spiral of spending and taxing.
Had Tennessee already had a strong Taxpayers Bill of Rights, the last three years of anguish over the income tax would never have happened. Don Sundquist, Jimmy Naifeh, Bob Rochelle and the rest of Team Income Tax would have had to ask the people to support their plan, rather than merely try to ram it through the legislature by deliberately spending Tennessee into a fiscal crisis.
It's time for a well-coordinated, well-funded effort to build support and establish a Taxpayers' Bill of Rights in the Tennessee constitution. It's time for Permanent Offense. If you'd like to be a part of a group working to establish just such an organization, or would like to help fund the effort, please contact me at the email address in the "about this site" box in the right side column.
Postscript: For more on the Colorado Taxpayers' Bill of Rights please read two columns of mine published last year and one published last March in the Nashville City Paper.
Finding Common Ground on Taxes - August 23, 2001
Tennessee Should Consider Taxpayers' Bill of Rights - August 30, 2001
Spending Cuts Now May Lessen Future Deficits - March 21, 2002
Some thoughts on victory:
"The most dangerous moment comes with victory." - Napoleon Bonaparte
"You know how to conquer, Hannibal, but not how to profit by your victory." - Macherbal
"No conquest can ever become permanent which does not show itself beneficial to the conquered as well as to the conquerors." - Thomas Carlyle
"I would rather lose in a cause that will some day win, than win in a cause that will some day lose!" - Woodrow T. Wilson
"I look at victory as milestones on a very long highway." - Joan Benoit Samuelson
"Victory; a matter of staying power." - Elbert Hubbard
If ever a governor was a lame-duck, it's Gov. Don Sundquist, after 24 hours of exhausting, exhilarating activity in the state legislature that appears to have reduced the governor from merely politically ineffective to impotent and irrelevant. It also appears to have left the income tax dead and seals the Sundquist legacy as one of massive over-spending and a failed grab for a new tax code designed to fund what he himself described as the endless expansion of state government.
A once-very popular congressman who won the governor's mansion twice, the second time by a landslide, Sundquist now limps toward the end of a second term marked by no notable accomplishments. The state's finances are a wreck precisely because he wrecked them - spending reserves, blowing surpluses, refusing for years to reform TennCare, overcharging the federal government $450 million via an illegal nursing home tax-and-grant program, and filling his budget proposals with unaffordable pork like $27 million to build fraternity houses at MTSU and ETSU, and golf-cart crossings at state parks.
After 7-plus years of profligate spending, mismanagement and lies, the Sundquist Administraton has ended with a whimper, his grand dream of turning Tennessee into a high-taxing and big-spending state crashed on the rocks of reality: almost no one wanted the snake oil Sundquist was selling.
It was an amazing 24 hours. Tuesday, Spendquist pathetically proposed a new tax reform plan he described as a "compromise" but which was really a bait-and-switch. It would have imposed a 1% income tax come Jan. 1 - to "test" the constitutionality of it, the governor said - and voters would have been asked to vote - 2 years from now - on whether to call a constitutional convention on taxes. If they voted no, the income tax would rise to 3.5%.
But of course the income tax is already unconstitutional, and we have three state Supreme Court rulings that say so. We don't need to do something illegal to 'test' whether a stacked court of liberals will let the government get away with violating the restrictions placed on it by Article 2, Sections 28 and 29, and Article 11, Section 9, of the state constitution.
And of course there was no guarantee that Sundquist's allies-in-taxation - House Speaker Jimmy "We Vote 'Til I Get My Way" Naifeh and Sen. Bob "Work is a Taxable Privelege" Rochelle - wouldn't later push a bill to strip the referendum out of the law.
No matter - the press barely had time to report on Sundquist's proposal (which he announced with all the emotional fervor of a limp dish rag) than the legislature yawned and ignored him. Last night, Jimmy Soprano made one last stab to keep his income tax alive by lying to Rep. Frank Buck - Naifeh promised to bring the income tax up for a vote but instead adjourned the House after realizing he didn't have the votes.
But by Wednesday afternoon, Naifeh - his credibility in tatters - was reduced to admitting his income tax plan was dead. And Gov. Sundquist, according to Channel 4 news, was forced to promise he wouldn't pursue "tax reform" again for the rest of his term.
Of course, there's no guarantee the governor, who campaigned for his job by promising loudly to oppose an income tax, will keep his promise. He still has a few more months to dream and scheme and try once more for "tax reform." But the events of the past 24 hours have shown he has paid a high political price for his lying ways: No one is listening to him anymore.
Thank God it's over.