Balancing Taxes in Tennessee and Elsewhere

"When I get older losing my hair, many years from now
Will you still be sending me a valentine, birthday greetings, bottle of wine?
If I'd been out till quarter to three, would you lock the door?
Will you still need me, will you still feed me -- When I'm sixty-four?"

The above [copyright held by Sony/ATV Tunes] is particularly sensitive and applicable today.  I'm not really losing my hair as you can see, and the last time I was even awake at quarter to three was probably a barbershop quartet convention sometime back in the 1990s.

But today is May 11, 2015, and today I turn 64.  So naturally, today my thoughts turn to taxes.

Saturday I was driving to meet my brother for a rare round of golf, and I was listening to the speeches by (mostly) presumptive presidential candidates and declared ones, from a conference in South Carolina to which they were invited.  I'll dispense with the ones I heard from the candidates, because this isn't about that.

One from a non-candidate was given by Marsha Blackburn, a Republican House member from the great state of Tennessee.  Mrs. Blackburn gave a very good speech, with a lot of fine content.  But there was one point she did make that's worth discussion.

Mrs. Blackburn referred at one point to a fight in Tennessee to ensure there was not a state income tax passed, and that there was an amendment successfully passed to the state Constitution forbidding an income tax.  Now, I realize that part of the speech was as much, or more, about mobilizing the populace to keep intrusive government from doing things, but I had a moment to think about the specific topic.

I live in a state (actually, a commonwealth) with an income tax, and if my best girl and I can ever actually retire, we plan to move to another one that also has an income tax.  I sort of envy those who live in states that don't.  But should the people of Tennessee have hamstrung their legislatures so that is would never be possible?

I'm not sure.

Here's the point.  In any jurisdiction -- let's use "states" as examples -- there are legitimate functions of government as mandated by their constitutions and the U.S. Constitution.  We can all stipulate that.  We can stipulate that those functions have a cost, and that cost is paid for with taxes.

The states being incubators of ideas, it is no surprise that different states have developed or adapted many different sources of tax revenue.  Most have a state income tax, most a state sales tax, of course, and there is a variety of others -- property taxes, car taxes, corporate taxes ... which ones are used is less the point than the available variety.  Moreover, in each category there is the variability of the rate, which affects the impact of that tax on its payers, and of its revenues on the treasury.

So while I hate paying the income tax, I respect the fact that one way or the other, the taxes to pay for the obligatory functioning of state governments have to be raised.  If in one state, say, 40% of the revenues come from the income tax, 35% from sales taxes, 20% from property taxes and 5% from highway tolls, tobacco and alcohol taxes or something else, that is different from one whose rates, higher here, lower there, nonexistent way over there, produce a pattern that goes 45%-40%-10%-5%.

Because taxes depress the activity being taxed, we understand that a higher income tax rate -- or an income tax at all when compared to a state without it -- depresses productivity.  High sales taxes suppress retail activity.  Personal property taxes suppress capital sales of cars and other capital-intensive items.

So every state has to decide what the priorities are, and they're granted that right by the Constitution.  If a state like Tennessee (or Florida, Texas, or the others) decides that it will not have an income tax, that's great for them who earn income, but the revenue has to come from somewhere.  This is not a discussion of spending at all.  I'm just making the point that even in a balanced-budget state, revenue is a zero-sum game, and if you ban the income tax, then sales tax, property tax and others have to be higher to produce the revenue.

By not having the income tax, you are simply forcing up the rates on other taxable sources, and accordingly suppressing the activities those taxes hit us for.  By constitutionally banning the income tax, Tennessee has taken a tool out of its future legislators' toolbox to fund their government.

The State of Tennessee and its people have the right to amend their constitution and ban the income tax.  As a conservative, I support their right to do that.  And income taxes give me the creeps.

However, I also believe that the unintended consequence of all types of taxation -- the suppression of the activity being taxed -- is a pain that needs to be balanced through differentiation of the tax structures that fund government.  And to remove one of those tools is to concentrate the pain of the other forms of taxation, and the suppression of those activities, into a smaller base.

I applaud Rep. Blackburn for defending her state's turf, and I applaud the citizens of the State of Tennessee for taking the running of their government into their own hands.

At the same time, though, there are two sides even to the conservative view here.  And I have to question the long-term wisdom of narrowing the options of the state's legislature to develop a balanced revenue-raising program for the government that serves its citizens.

Mrs. Blackburn's speech, I hope, can spur a little discussion on this point.  Now that I'm 64, I'm happy to start.

Copyright 2015 by Robert Sutton
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