Tennessee’s Budget and its Taxes …
Posted by: Blue Collar Muse in Blogging, Business, Common Sense, Conservative, Economics, Liberal, Pork, Smaller Government, Taxes, Tennesee Tips, Unintended ConsequencesAs Stacey Campfield (R - TN 18) notes in his recent post, ‘Easy Money’, under the Bredesen administration, state expenditures in Tennessee have grown from $19 billion in 2002 to 2007’s $28 billion dollar budget buster!. That’s a 32% increase in just 6 years!
Given Phil Bredesen (D) has traveled the state raising fears of $500 million shortfalls, adjustments to which run as high as an additional $500 million, it might be prudent to look at some numbers, especially since folks like NIT’s Christian Grantham are suggesting an Income Tax yet again.
Tax increases are generally justified by citing corresponding necessary increases in expenses. What justification exists for Tennessee’s skyrocketing budget? I understand things cost more over time. But 32% more? Has the cost of living in Tennessee increased 32% in 6 years? The Social Security Administration allowed Cost of Living Allowance increases averaging just 3.6% annually since 2002. Applied to to Tennessee’s budget that would have produced growth from $19 billion to just $22,200,588,000 for the same 6 years. Since Tennessee successfully raised the $28 billion for 2007’s expenses, had it also adopted SSA’s standards, the state would have spent more each year and still had a $5.8 billion surplus last year.
That’s $1,933 per person in the state’s labor force or almost $1,000 for every man, woman and child in Tennessee! Which makes Christian Grantham’s proposal convoluted and unnecessary. If the Governor would simply stop spending money like a drunken sailor, Tennesseans would automatically get tax cuts. Bredesen could double the SSA’s COLA rate in spending and we’d still have a surplus. If the state just lived within budget constraints Government imposes on many of its citizens, there would be no shortfall and we could reduce taxes across the board with real tax cuts. Failing that, at a minimum we could better afford the one thing Grantham proposes I do agree with, weaning Tennessee from its own Welfare reliance.
Christian Grantham proposes reducing our sales tax and adding an income tax because, in his words,
When state budgets are tied to consumer driven tax revenues, hard times can hit government services when they are needed the most … It would also provide the steady revenues the state needs for long-term financial stability rather than ebbing and flowing with consumer spending.”
Not only does this ignore the Economic horror associated with having both an Income and a Sales tax, but it fails to realize problems inherent in consumer driven tax revenues apply to income driven tax revenues, too. He should consider what is happening right now in Michigan. This on the heels of Michigan Governor Jennifer Granholm (D) ramming a massive $1.6 billion tax increase down the throats of Michigan taxpayers last year. People don’t spend less in down times only because fears are fueling their decisions. Just as often people spend less because they are making less. Foolishly adding an income tax to generate revenue removes what little day-to-day control citizens have over their tax payments and means Government cares more about getting money for its purposes while refusing to consider the welfare of its citizens. If taxpayers don’t have extra money to spend on consumer items, they surely don’t have extra money to finance out of control Government expansion. It’s time to see Government sacrifice before asking citizens to do the same.
Grantham’s income tax idea may well be great for what he calls the “long term financial stability” of Tennessee. I’m more concerned with the long term financial stability of Tennesseans.
Blue Collar Muse
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Tags: Budget Shortfall, Christian Grantham, COLA, Government Expansion, Jennifer Granholm, Nashville is Talking, NIT, Phil Bredesen, Stacey Campfield, State Income Tax, Tax Cuts, Tax Increases
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November 17th, 2008 at 12:42 pm
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November 17th, 2008 at 2:10 pm
So, we’ve got between $5,000,000,000 and $6,000,000,000 in spending that you think ought to be cut?
Where should we cut it from, then?
November 17th, 2008 at 2:49 pm
@N.S. Allen -
I don’t have access, at the moment, to the proposed budgets or the adopted budgets for the last 6 years containing the line items detailing the expenditures for the state. Thus it would be difficult to outline where I think we should cut the budget. A good place to begin looking, however, would be The Tennessee Center for Policy Research’s annual Pork Reports for the last couple of years. Further, with a GOP controlled Legislature I think it quite possible we are going to be having exactly that conversation next year. So we can look at answering your question after the holidays.
But a more relevant question, and the one I was addressing which you skipped over to ask me about cuts is, where did the tax increases go and how can you justify that?
Or do you think a 32% increase in spending is legitimate without looking really hard at where the money went and better options for spending it?
November 17th, 2008 at 5:13 pm
You know, the fact of the matter is that we’re probably going to have to mix taxes and spending cuts. If we’re cutting pure pork, that’s great. Slice it off, throw it away, and breathe a sigh of relief. But that won’t be enough, I’d wager. In reality, we’re going to have to make some tough choices about whether we need to raise more revenue or cut more spending.
So, which hurts our economy more? Your original post suggests that it’s definitely tax cuts - that higher taxes hurt the economy, while spending cuts do not.
So, in effect, you act as if we could just chop off $6,000,000,000 or so from the state budget and not see any economic problems, as a result. That’s simply not the case. The money the state spends doesn’t disappear into a sinkhole. It employs people, it provides public services, it creates public works - in other words, it’s a major player in the state economy. And the state economy, in turn, is a major player in each and every one of our pocketbooks. You can’t financially punch the state in the gut and hope the economy will just get better.
Now, in reality, the ideal response to this would be deficit spending. Deficit spending in an economic downturn kickstarts things, because you avoid tax cuts and spending cuts on important things, and then you can make up the deficit once the economy recovers. But Tennessee can’t do that, so we have to ask which hurts the economy more: cuts or taxes.
Well, I can’t really tell you, because I’m not an economist. But these guys are Nobel prize winning economists, and they make a pretty simple argument that it’s spending cuts, because tax increases make up for part of what they reduce in consumption spending with money that otherwise would have been saved, while spending cuts do not.
(Likewise, the reverse would be true for spending/tax cuts - if you cut, say, one dollar that the government is spending and give it to someone in the public, they’re likely to spend part of it and save part of it, because the economy is bad. Hence, you’ve actually reduced the amount of money being spent in the economy, continuing the downturn and hurting everyone for even longer.)
I’m simplifying a little, of course, but their conclusion is simple enough: “tax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run. Reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short run than tax increases focused on higher-income families.”
And what’s the simplest way to carefully target tax increases to hit higher-income families?
Income tax.