TN tax structure helps, but state, cities spend too much

As the bad mem­ory of April 15 fades, my fel­low Ten­nesseans may be curi­ous to know how our state com­pares to oth­ers in terms of taxes. The good news cen­ters on the meth­ods state and local gov­ern­ments take to extract rev­enue. Here, at least, we fare quite well com­pared to most Amer­i­cans.

Indeed, Ten­nessee is sixth-best in the nation, accord­ing to a newly released study from the Pacific Research Insti­tute that I co-authored. In par­tic­u­lar, Ten­nessee gets high marks for its lack of an income tax, except on div­i­dends and inter­est. In fact, the rea­son I came to Ten­nessee was its tax structure.

Over­all tax bur­den too high

Sev­eral years ago, I moved from New York City to work in the invest­ment firm of Arthur Laf­fer, who relo­cated to Nashville from Cal­i­for­nia because of that state’s sti­fling taxes. One of his con­di­tions was that his offices be in a state with no income tax. Now that I am on my own, I can see the ben­e­fits firsthand.

Ten­nessee also fea­tures a rel­a­tively low cor­po­rate income tax bur­den and low prop­erty tax receipts rel­a­tive to the size of the state’s econ­omy. The bad news: Tennessee’s over­all tax bur­den is too high, and state politi­cians spend too much. After net­ting out the flows to and from the fed­eral gov­ern­ment, state and local gov­ern­ment spend more than 16 per­cent of the state’s entire eco­nomic out­put. This is above the norm; there are 30 other states with smaller drains on their cit­i­zens’ resources.

Ten­nesseans must real­ize that when state and local gov­ern­ments spend money, such action, by itself, doesn’t make the state richer. That money had to come from somewhere.

For exam­ple, the Music City Cen­ter, the new con­ven­tion cen­ter in down­town Nashville, states on its web­site that total expen­di­tures were $80.7 mil­lion through March, with pro­jected expenses of more than $600 mil­lion before the project is com­pleted. These rev­enues will come from ear­marked taxes and lines of credit.

The jus­ti­fi­ca­tion for the huge expen­di­ture is that the cen­ter will bring in more tourists and boost tax col­lec­tions, thus “pay­ing for itself.” Yet, if that’s true, we have to ask why pri­vate venues aren’t also expand­ing. When politi­cians say they are savvier investors than peo­ple who have their own money on the line, tax­pay­ers should be very suspicious.

State and local politi­cians are on the wrong side of the curve when it comes to their appetite for spend­ing. By promis­ing fewer good­ies and stick­ing to tra­di­tional func­tions of gov­ern­ment, Ten­nessee politi­cians would lighten the bur­den on all of us as we strug­gle through this painful recession.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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