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Tennessee is in desperate need of tax reform.

With a highly regressive sales tax as the main source of state revenue, Tennessee ranks as one of the worst states in the nation for income inequality. Our state has fallen behind others in economic growth and has lost thousands of jobs due to the harmful nature of our tax code. You’d think with all of the negative effects of our current system, that representatives in Nashville would be trying to seek relevant solutions to this problem that would place middle and lower class families first.

Instead, the only major proposal (that was made by the Governor) actually sought to increase inheritance tax exemptions and reduced the sales tax on food by a measly .2%. And worst of all, many people actually viewed this weak legislation as reform. Really…how is reducing the tax burden on rich Tennesseans who have already benefited from the regressive nature of our state’s tax code reform? Maybe the conservatives in our state legislature believe this will have some sort of far-fetched “trickle down” effect for working families. Or, more than likely, they are defending the assets of their wealthy supporters in their respective districts.

It is amazing how out of touch representatives in Nashville are with the facts. My home state has the highest sales tax in the country, businesses fleeing from the state in droves, and families struggling; yet, they act like there is nothing wrong with current policy. It is not that hard to bring meaningful reform that would help the middle and working class families as well as businesses in our state, but no one has looked at what will actually work. Here are a few, simple solutions that would do our (by our, I’m referring to Tennesseans reading this diary) state well:

First of all, we need to get rid of what has been the main source of financing Tennessee’s public expenditures for years: the sales tax. This tax costs jobs, redistributes wealth upward, and is easily avoided through online shopping and crossing over into other states that have much lower sales taxes.

There are two taxes that we could implement to replace the sales tax.

Number One: We should use a land value tax to fund expenditures. A land value tax is basically this: a tax on the rental value of land. This tax does not apply to improvements, cannot be evaded, and provides a large amount of revenue without hurting the economy. As the well-known American economist, Paul Samuelson wrote, “Pure land rent is in the nature of a ’surplus’ which can be taxed heavily without distorting production incentives or efficiency.” This tax would be used to fund the majority of public expenditures.

Number Two: We should implement a state income tax for citizens that are upper-middle or upper class. I believe a good starting point for a state income tax would roughly around $100,000 a year. The income tax would only have a few brackets, probably no more than four. This would ensure that our tax system is progressive and does not harm the lower and middle classes.

With the large amount of revenue produced by these two taxes, I believe that we should be able to reduce taxes on businesses and improve our state’s education, health, social services, etc. Overall, switching from a regressive sales tax to a land value and progressive income tax system would increase revenue, relieve the current burdens that have been placed on working families, and improve business relations with our state government.

Here are some links:

http://en.wikipedia.org/...   (More info on land value taxation)
http://www.prospercalifornia.com/   (Similar proposal for California’s tax code)
http://www.fairtaxation.org/...   (Organization that is campaigning for progressive taxation in Tennessee)

Originally posted to Raging Ryno on Sun Mar 18, 2012 at 06:02 PM PDT.

Also republished by Southern Action, Nashville KosKats, and Three Star Kossacks.

Poll

What do you think Tennesseans?

37%13 votes
40%14 votes
5%2 votes
0%0 votes
11%4 votes
5%2 votes

| 35 votes | Vote | Results

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Comment Preferences

  •  This is good work (6+ / 0-)

    I don't think it has a snowballs chance of implementation, but I think it's a great diary, and an important discussion for immediate action that all Tennessee progressives should endorse. Republished to 3 Star, Nashville KosKats, Southern Action. Good luck. Are you with fairtaxation? Please let me know.

    I am an American citizen. I am a writer. You have been warned.
    Economic Left/Right: -7.75
    Social Libertarian/Authoritarian: -4.51

    by Bud Fields on Sun Mar 18, 2012 at 06:12:54 PM PDT

  •  All of this is far too (5+ / 0-)

    rational, fair, and effective.

    So, Tennessee will never do it.

    The minute anybody tries, our three most destructive citizens (Steve Gill, Phil Valentine, and Dave Ramsey) will rally the crazies and they will storm the capitol.  Remember 2001.

    So I see only tatters of clearness through a pervading obscurity - Annie Dillard -6.88, -5.33

    by illinifan17 on Sun Mar 18, 2012 at 06:16:13 PM PDT

  •  I favor an income tax. (3+ / 0-)
    Recommended by:
    marykk, emmasnacker, Odysseus

    I have to admit I don't really understand the LVT, even after reading the wikipedia article, but it seems to me it would fall heavily on farmers. In addition, since the property tax is the major support of the school system, it seems to me that the same people would be paying the bulk of the taxes. A renter would pay no direct tax, is that right? What would that do to the cost of rent?

    It seems to me that an income tax on all income would be much fairer than what we have now- a high sales tax and the Hall Income tax which seems to affect retired people unproportionately.

    You can't scare me, I'm sticking to the Union - Woody Guthrie

    by sewaneepat on Sun Mar 18, 2012 at 06:37:02 PM PDT

    •  I see your point, but (1+ / 0-)
      Recommended by:
      Tennessee Dave

      The LVT is highly efficient and has produced good results where it has been implemented (Pennsylvania, Denmark, etc.) I think progressives should be open to using both a high rate of LVT and progressive income tax to fund services.

      •  Now I have read the California proposal (1+ / 0-)
        Recommended by:
        Larsstephens

        and that seems to be an entirely different case than Tn since it says that the majority of CA land is owned by a few people. That is not the case in TN. We have very few factory farms owned by corporations but many family farms.

        What would you suppose the rate would be? Would the value be the same as the land value of property as reflected in the property tax valuations? How would it affect greenbelt and land conservation valuation?

        I don't quite believe the CA information either. for example, it says that renters would benefit. But if the landlord has to pay a huge amount of tax on the property, he will pass that expense to renters and they would actually be paying the tax indirectly, just as they do property tax now.

        You can't scare me, I'm sticking to the Union - Woody Guthrie

        by sewaneepat on Sun Mar 18, 2012 at 08:04:15 PM PDT

        [ Parent ]

  •  The more I read, the less I like the LVT. (3+ / 0-)
    Recommended by:
    Odysseus, Calamity Jean, Larsstephens

    best I can tell, in PA there are about 20 cities which use a modified LVT in that there is a higher rate for land than for improvements in their property tax. But they are not trying to fund their whole state budget with it, just how they do the city property tax. Even this does not seem to be fair in that someone with a huge mansion on a quarter acre lot would pay essentially the same tax as a small house on the same size lot.

    Also, the uniformity rule says that the same valuation has to be used throughout the jurisdiction. So if it were a statewide tax, land in Hillsboro Village would be valued the same as land in Franklin County. Williamson County land would be valued the same as Lewis County. If I am wrong in my interpretation and it means that it is just the same tax rate, not the same valuation, it would still fall hard on the poorer counties who cannot afford the same tax rate as the wealthier counties.

    Am I missing something?

    You can't scare me, I'm sticking to the Union - Woody Guthrie

    by sewaneepat on Sun Mar 18, 2012 at 08:23:56 PM PDT

  •  Florida is even worse (0+ / 0-)

    Florida continues to hemmorage jobs (38,000 lost in January) under Rick Scott's policies while the rest of the nation enjoys good job growth - well except for Walker's Wisconsin.

    Unemployment in Florida is decreasing due to people leaving the State to take opportunities elsewhere.  This fact shows up in the continued falling tax revenues.

  •  We do really need an income tax in TN (1+ / 0-)
    Recommended by:
    ZenTrainer

    though I'm not so sure about a land value tax, as it might not be progressive in Tennessee for reasons described above. Tennessee sales taxes, ridiculously high as they are, don't seem to keep the state out of budget messes.

    Male, 21, -4.75/-6.92, born and raised TN-05, now WI-02, unapologetic supporter of Obama and Occupy. Tammy Baldwin for Senate and Recall Walker!

    by fearlessfred14 on Tue Mar 20, 2012 at 10:06:05 AM PDT

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