Tennesseans for Fair Taxation
Encyclopedia
Tennesseans for Fair Taxation (TFT) is a Tennessee
political advocacy group advocating tax reform, particularly at the state level.
As a grassroots
group of generally low and moderate income families, Tennesseans for Fair Taxation is allied with state public employee and schoolteacher groups, along with faith-based organizations and good government groups, in establishing a progressive
, broad-based state income tax
as part of a larger tax modernization package that would also repeal the food tax and reduce the sales tax. This group notes that Tennessee is shown by almost all objective measures to have one of the lowest per capita level of taxes of the fifty U.S. states but that the tax share is disproportionately placed upon poorer people. This is because the majority of state tax revenues in Tennessee are derived from a sales tax
, which applies to food, clothing, furniture, car parts, and other necessities, but not private school tuition, real estate investments, attorney fees, or stocks and bonds (except for interest earned and dividends, which are taxed at 6 percent under the Hall income tax
, Tennessee being the only state with this provision). In Tennessee, food for human consumption is taxed at 5.5% (This was lowered from 6 to 5.5% in January 2008) and most other items of commerce at 7%, with local jurisdictions empowered to add as much as another 2.75% to this, making the overall sales tax rate in many jurisdictions, including the major urban area
s, 8.25% on food and 9.75% on other items.
A further point made is that due to the size and shape of Tennessee, and the location of its major population centers, half of the population of the state lives within 20 miles of at least one other state and that all of the population lives no more than 65 miles from at least one other state, and that all of the surrounding states have a lower overall sales tax rate than Tennessee, meaning that many Tennesseans tend to make many purchases, especially major ones, in surrounding states, with Tennessee receiving no revenue from such transactions whatever, in essence making Tennesseans major taxpayers in surrounding states.
TFT also made the point that even many affluent Tennesseans could benefit from the fact that state income taxes are deductible from for purposes of computing liability for federal income tax, whereas sales taxes , were not. The Congress
changed this in October 2004. However, since those who the sales tax impacts the most are the least likely to itemize, this recent change has little effect.
. First, that the overall burden of taxation imposed by all levels of government, including the federal government, shows that poorer Tennesseans, like poorer Americans in general, pay a lower share of their income in taxes overall than wealthy ones. They add that the portion of food purchased by persons using food stamps, which covers at least part of their groceries, is automatically tax-exempt. Further, they argue true "fairness" is epitomized by the sales tax, which is the only tax which directly affects persons who work in the so-called underground economy
which is driven by cash. Hence it represents the only tax paid by undocumented aliens, drug dealers, pimps and prostitutes. Of course, people can also avoid the sales tax buy buying things under the table with cash. They further point out that Tennessee does impose a flat income tax of 6% on dividend
s and some interest
. This income tax is paid almost entirely by more affluent Tennesseans, since the first $1250 of such income, and all such income from bank interest payments, is exempt.
In addition to its long-term work to modernize Tennessee's tax system, TFT has also worked on other initiatives that fit within its mission. Most recently, TFT has worked to close corporate tax loopholes by enacting combined reporting for business excise tax purposes. The business excise tax in Tennessee is a tax on business profits levied at 6.5% of net earnings. Tennessee currently uses separate reporting, which means each company files a separate tax return, even if that company is just a subsidiary of a larger parent company. This makes Tennessee vulnerable to a host of tax avoidance schemes such as Delaware Holding Companies and Captive REITs. Under combined reporting rules, as is used in 22 states currently, the parent company and all its related subsidiaries file a single, unified tax return, rendering the shifting of profits between affiliates meaningless, and thereby shutting down a host of tax loopholes at once.
Tennessee
Tennessee is a U.S. state located in the Southeastern United States. It has a population of 6,346,105, making it the nation's 17th-largest state by population, and covers , making it the 36th-largest by total land area...
political advocacy group advocating tax reform, particularly at the state level.
As a grassroots
Grassroots
A grassroots movement is one driven by the politics of a community. The term implies that the creation of the movement and the group supporting it are natural and spontaneous, highlighting the differences between this and a movement that is orchestrated by traditional power structures...
group of generally low and moderate income families, Tennesseans for Fair Taxation is allied with state public employee and schoolteacher groups, along with faith-based organizations and good government groups, in establishing a progressive
Progressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...
, broad-based state income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
as part of a larger tax modernization package that would also repeal the food tax and reduce the sales tax. This group notes that Tennessee is shown by almost all objective measures to have one of the lowest per capita level of taxes of the fifty U.S. states but that the tax share is disproportionately placed upon poorer people. This is because the majority of state tax revenues in Tennessee are derived from a sales tax
Sales tax
A sales tax is a tax, usually paid by the consumer at the point of purchase, itemized separately from the base price, for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale....
, which applies to food, clothing, furniture, car parts, and other necessities, but not private school tuition, real estate investments, attorney fees, or stocks and bonds (except for interest earned and dividends, which are taxed at 6 percent under the Hall income tax
Hall income tax
The Hall income tax is a Tennessee state tax on interest and dividend income from investments. It is the only tax on personal income in Tennessee, which does not levy a general state income tax. The current tax rate is 6 percent, applied to all taxable interest and dividend income over $1250 per...
, Tennessee being the only state with this provision). In Tennessee, food for human consumption is taxed at 5.5% (This was lowered from 6 to 5.5% in January 2008) and most other items of commerce at 7%, with local jurisdictions empowered to add as much as another 2.75% to this, making the overall sales tax rate in many jurisdictions, including the major urban area
Urban area
An urban area is characterized by higher population density and vast human features in comparison to areas surrounding it. Urban areas may be cities, towns or conurbations, but the term is not commonly extended to rural settlements such as villages and hamlets.Urban areas are created and further...
s, 8.25% on food and 9.75% on other items.
Argument
The argument advanced by TFT is a twofold one. The first point is that Tennessee governmental services are as a whole inadequate, in large part due to an inadequate tax base and the heavy dependence on one revenue source. Because of the shift to a service-based economy, exacerbated by the growth of internet sales, the sales tax has been eroded over many years. The second is that the poor pay a share of tax that is out of proportion to their income, in that most poor people consume the entire amount of their income and are hence taxed upon all of it, whereas most wealthier people invest some or much of their income, or spend it on non-taxable items like private school tuition and accounting services, and hence are not taxed on it by the state. Therefore, the argument goes, the poor are disproportionately taxed by the existing Tennessee system.TFT also made the point that even many affluent Tennesseans could benefit from the fact that state income taxes are deductible from for purposes of computing liability for federal income tax, whereas sales taxes , were not. The Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
changed this in October 2004. However, since those who the sales tax impacts the most are the least likely to itemize, this recent change has little effect.
Counter argument
The counter-argument is made by groups such as Tennessee Tax RevoltTennessee Tax Revolt
Tennessee Tax Revolt is a nonpartisan grassroots political organization which grew out of efforts during the second administration of former governor of Tennessee Don Sundquist to enact a state income tax.-Public protests:...
. First, that the overall burden of taxation imposed by all levels of government, including the federal government, shows that poorer Tennesseans, like poorer Americans in general, pay a lower share of their income in taxes overall than wealthy ones. They add that the portion of food purchased by persons using food stamps, which covers at least part of their groceries, is automatically tax-exempt. Further, they argue true "fairness" is epitomized by the sales tax, which is the only tax which directly affects persons who work in the so-called underground economy
Underground economy
A black market or underground economy is a market in goods or services which operates outside the formal one supported by established state power. Typically the totality of such activity is referred to with the definite article as a complement to the official economies, by market for such goods and...
which is driven by cash. Hence it represents the only tax paid by undocumented aliens, drug dealers, pimps and prostitutes. Of course, people can also avoid the sales tax buy buying things under the table with cash. They further point out that Tennessee does impose a flat income tax of 6% on dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s and some interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
. This income tax is paid almost entirely by more affluent Tennesseans, since the first $1250 of such income, and all such income from bank interest payments, is exempt.
Goals
TFT hopes to overcome the general resistance to a state income tax by showing that somewhere between two-thirds and four-fifths of all Tennessee residents would pay less tax by switching to an income-tax centered system of taxation. Their current literature suggests that the food tax could be completely repealed, the overall sales tax rate could be lowered to 5.75%, and more revenue still be generated by the state with the implementation of a modest income tax. Opponents argue that there would be no guarantee that the sales tax rates, once lowered, would not soon be raised again.In addition to its long-term work to modernize Tennessee's tax system, TFT has also worked on other initiatives that fit within its mission. Most recently, TFT has worked to close corporate tax loopholes by enacting combined reporting for business excise tax purposes. The business excise tax in Tennessee is a tax on business profits levied at 6.5% of net earnings. Tennessee currently uses separate reporting, which means each company files a separate tax return, even if that company is just a subsidiary of a larger parent company. This makes Tennessee vulnerable to a host of tax avoidance schemes such as Delaware Holding Companies and Captive REITs. Under combined reporting rules, as is used in 22 states currently, the parent company and all its related subsidiaries file a single, unified tax return, rendering the shifting of profits between affiliates meaningless, and thereby shutting down a host of tax loopholes at once.