In some political battles, the two sides see a core issue so differently that they barely seem to speak the same language. And then there’s the fight over adding an amendment to Tennessee’s constitution that would ban a state income tax. At times, it’s hard to even tell which side is talking.
Both sides say they’re concerned about letting working Tennesseans keep the most of their paycheck. Both contend the vote on amendment three will determine whether lawmakers can levvy an unfair tax. But one group is warning about the income tax while the other says the amendment will ultimately lead to a higher sales tax.
Confused yet? Let’s back up a step and look at the amendment itself.
[box]Shall Article II, Section 28 of the Constitution of Tennessee be amended by adding the following sentence at the end of the final substantive paragraph within the section: Notwithstanding the authority to tax privileges or any other authority set forth in this Constitution, the Legislature shall not levy, authorize or otherwise permit any state or local tax upon payroll or earned personal income or any state or local tax measured by payroll or earned personal income; however, nothing contained herein shall be construed as prohibiting any tax in effect on January 1, 2011, or adjustment of the rate of such tax.[/box]
No Income Tax Allowed
The first part says “The Legislature shall not levy, authorize or otherwise permit any state or local tax upon payroll or earned personal income.”
That’s what State Senator Brian Kelsey summed up in a chant at a rally last month, saying “Yes On Three? Income Tax Free!”
Out in the small crowd, Roger Ferguson said he wanted to protest “any kind of income tax being put on anybody in this state, period.” As he put it, he’s just sick of taxes.
His wife Carol, chimed in to add that she thinks the absence of an income tax is one of the biggest draws for the state right now. For one thing, she says it attracts businesses to Tennessee. Then she smiled and laughed a little, saying people just don’t want to fill out any more forms come tax time.
Back on the stage, activist Ben Cunningham said state history contains a warning for folks like the Fergusons: In 1999, Republican governor Don Sundquist was reelected. Shortly afterwards, he proposed creation of a state income tax.
It took two years, but in 2001 the proposal made it to a floor vote in the legislature. The streets around the state capitol were caught in a gridlock of protestors honking car horns and waving signs. The vote was held open on the House floor while both sides scrambled to cut deals. It failed, but Cunningham says the incident proved that only an outright constitutional ban will keep an income tax proposal from bubbling up again.
Interestingly, that same 2001 struggle was used as an example by those opposing to the ban when lawmakers were asked to sign off on this amendment. Some called it proof that an income tax is a nonstarter. We’ve tried it before, said Rep. Larry Miller, D-Memphis, “and it didn’t happen.” Another Democrat, Rep. Craig Fitzhugh of Ripley, went further: “If there’s one thing you can say with certainty, [it’s] that an income tax won’t happen in Tennessee.”
Mike Stewart, D-Nashville, didn’t go that far, but the congressman pointed out that the 2001 proposal had the backing of key business leaders. He questioned the wisdom of assuming an income tax will always be the wrong choice for the state and said future governors should be able to “at least make those proposals.”
What If The State Wants To Raise Revenue?
Now that the amendment is due for its referendum vote, there aren’t really any legislators loudly arguing against it. There is, however, a small network of activists around the state, like Brian Paddock, a retired lawyer in Cookeville. Paddock has a different concern about how events played out in 2001. After deciding not to create an income tax, lawmakers instead raised the sales tax.
Paddock points to language at the end of the amendment: “Nothing contained herein shall be construed as prohibiting any tax in effect on January 1, 2011, or adjustment of the rate of such tax.” He contends some politicians will read that to be an invitation to raise the sales tax. In other words, he’s afraid history will repeat itself.
That’s a problem, Paddock argues, because wealthier people spend most of their money on items and services that are only partially taxed — or not taxed at all — while most Tennesseans pay taxes on nearly every dollar spent. He contends that makes the sales tax fundamentally unfair.
“Ordinary folks,” he says, “are the ones who are really paying a disproportionate share of the cost of state government.”
Back at the pro-amendment rally, Marie Mobely says she’s not really worried about that possibility:
“On sales tax, everybody pays. Whether they’re coming through the state or they’re immigrants, everybody pays.”
Some people already consider the matter settled: The state’s constitution specifically says what can be taxed, and personal income isn’t on that list. But if Amendment 3passes, there will be no doubt that Tennessee would have to look to a method other than an income tax if it’s going to raise its revenue.