Income Tax Would Invite Pink Slips

May 31, 2009 9:04PM

By Drew Johnson ‘Never let a serious crisis go to waste.” With these words, White House Chief of Staff Rahm Emanuel exposed the playbook for tax increase advocates. By using a crisis to scare citizens, politicians from Abraham Lincoln to Franklin Delano Roosevelt to Barack Obama learned that they could swindle constituents into giving up money and freedoms. The last time the Tennessee state government faced a crisis — during the budget difficulties of 2001-2002 — income tax fanatics exploited the situation by trying to sneak a state income tax onto the books. It should come as no surprise that when word spread of a $1.2 billion state budget shortfall this year, the fanatics dusted off their hackneyed “sky is falling” routine and took to their soapboxes in an all-out assault against economic common sense and limited, responsible government. A proposal quickly emerged in the state legislature to institute an income tax that would burden Tennessee families with a tax on wages of up to 7.75 percent. The scheme would eliminate the sales tax on groceries and reduce state sales taxes by a measly 25 cents per $100 of taxable goods purchased. Of course, the next time the state faced a crisis, the sales tax would almost certainly be ratcheted up even higher, creating a suffocating tax burden on Tennessee’s families. When income tax proponents attempt to shove an income tax down the throats of hard-working Tennesseans, there are two primary arguments they rely on in hopes of scaring lawmakers into passing a statewide tax on wages. First, they allege that the state’s current tax structure is outdated and “can’t keep up,” and an income tax will provide more fiscal stability. Second, they claim that an income tax is “fairer” and less regressive than a sales tax. Income tax fanatics are quick to blame the state budget deficit on Tennessee’s tax structure. They claim that Tennessee’s sales tax-focused revenue system can’t keep up with the state budget. Considering the state budget has skyrocketed from $17.8 billion to nearly $30 billion in eight years — more than three times the rate of inflation — the fanatics are right. There’s no revenue system in the world that could keep up with out-of-control spending going on in Nashville. Fairness is often cited as another reason to support an income tax. Sales taxes are generally regressive, meaning poor people pay a higher percentage of their income toward the tax than rich people pay. But there are far more regressive and less fair taxes in Tennessee than the state’s sales tax. The sales tax on groceries and the state’s gasoline taxes — things all Tennesseans must buy — are far more damaging and unfair to the state’s poorest residents. Instead of creating a dangerous scheme to topple Tennessee’s entire tax structure in the name of fairness, state lawmakers only need to cut wasteful spending and use the savings to reduce the state’s grocery and gas taxes. Nothing would help Tennessee’s most vulnerable residents more. Of course, if fairness were actually a concern, income tax proponents wouldn’t propose a plan that would place a massive new tax on entrepreneurs and job creators, resulting in the loss of tens of thousands of jobs. Since business owners facing a hefty income tax would have less money to hire or retain employees, many Tennesseans would receive a pink slip. In 1991, Connecticut became the most recent state to adopt an income tax. In order to pass the tax, Connecticut income tax backers used the same baseless scare mongering and bad math that income tax supporters in Tennessee employ today. Despite promises of greater fairness and stability, 18 years later, it is clear that adopting the tax was a devastating blunder. Contrary to promises made by income tax advocates, Connecticut’s income tax failed to produce long-term fiscal stability. Instead, the tax plunged the state into a brutal recession that continues to this day. In response, the state borrowed heavily and policy-makers drained the state’s reserve fund. Connecticut legislators then broadened the sales tax base, inflated cigarette taxes, imposed surcharges on Connecticut’s corporate tax, hiked energy taxes, implemented a new death tax and, ultimately, increased the income tax itself. Between 1976 and 1991, job growth in the state topped 29 percent. But between 1991 and today, job growth has been virtually nonexistent. The Federal Deposit Insurance Corp. recently concluded that since the early 1990s, “no other state has had such stagnation in employment.” Median household income in Connecticut has fallen by almost $3,300, in inflation-adjusted terms, since 1991. During the same time, median household income grew by almost $2,800 nationwide. To make matters worse, the income tax has severely dimmed Connecticut’s once-bright future. Young people flee the state in droves. U.S. Census Bureau data show that in the 1990s, no state in America lost a greater percentage of its 18- to 34-year-olds than Connecticut. As in Connecticut, an income tax in Tennessee would ravage the economy while doing little to make the state’s tax structure fairer or more stable. Fortunately, most state lawmakers understand that an income tax is an economically unsound, politically untenable and morally unjustifiable scheme. That means Tennessee will remain income tax-free — until perhaps there is another crisis to exploit. ###