Tennessee tax system is regressive8:23 pm | September 19, 2011
The head of the Tennessee Association of County Mayors said last week that more than half the counties he’s heard from are dipping into reserves to make ends meet and expect to do so again next year.
Carter County and Elizabethton aren’t the exceptions. Like other Tennessee city and county governments, their budgets have been stretched to the limit, resulting in tax increases as well as a dip into reserves. The result is that there has been a lot of anger, frustration and grumbling on the part of property owners, who are having to pick up the tab from household budgets that, too, are stretched thin. Unlike government, they have no way of hiking their income.
No one has yet invented a way to make taxes painless or popular. Most people don’t mind paying their taxes if everyone else pays their fair share or if it goes to causes such as education, the local library, building roads and bridges, etc. But when it goes to build a jail and to pay the medical bills of prisoners it kind of irks taxpayers.
Carter County and Elizabethton taxpayers not only pay property taxes, but they pay the maximum when it comes to sales taxes — 9.75 cents on every dollar. The local-option sales tax is the broadest based of taxes. The fact that everyone pays sales taxes makes it fair, however, the sales tax burden falls heaviest on those with low incomes, because more of the things they spend money for are subject to the sales tax. Tennesseans pay sales tax on food, utilities, clothing, gasoline and big ticket items such as appliances and cars.
The property tax is the simplest means to put money into city and county coffers, and it can readily be calculated the amount of income that it will generate, whereas, the sales tax revenue fluctuates. However, the property tax is paid only by those who own real property: Homes, businesses, farms, tracts of land. People who rent get off scot free, unless their landlords raise the rent to match the tax increase.
From time to time the county commission has tossed around the idea of a wheel tax as a means to generate income. The wheel tax is more broadly based than the property tax; most people own a vehicle, more than one in many cases. But once again, the burden falls heavier on the poor.
The Institute on Taxation & Economic Policy in a study on the tax system in all 50 states found that nearly every state and local tax system takes a much greater share of income from middle-and low-income families than from the wealthy. That is, when all state and local income, sales, excise and property taxes are added up, most tax systems are regressive.
Fairness is, of course, in the eye of the beholder.
That study listed Tennessee as one of the 10 most regressive tax states in that it asks its poorest residents — those in the bottom 20 percent of the income scale — to pay up to six times as much as their income in taxes as they ask the wealthy to pay. Tennessee relies very heavily on regressive sales and excise taxes, deriving between half and two-thirds of its tax revenue from these taxes, compared to the national average of 35 cents.
The study revealed that in Tennessee, those who make less than $17,000 annually will pay 9.3 percent of their income in sales and excise taxes and 2.4 percent in property taxes. Those who make an average of $23,000 annually will make 8.7 percent of their income in sales and excise taxes and 2 percent in property taxes, while those who make an average of $60,000 a year will pay 4.4 percent of their income in sales and excise taxes and 1.6 percent in property taxes.
Taxes are what we pay for the services we demand. Something has to go up, but what?