Fix the Problem 

The House Speaker makes the case for his flat-tax proposal.

No one wants to pay more taxes. I don't want to pay more in taxes than is absolutely necessary. However, I recognize that providing an adequate level of state services requires we all pay taxes.

We are a low-tax state and, even after tax reform, will continue to be a low-tax state. The average Tennessean pays less in state and local taxes than the citizens of any other state. Including the District of Columbia, we rank 51st in the nation in per-capita state taxation.

While being ranked last in taxation is a good thing, it does have consequences. If we insist on being 51st in taxes, we will never rank much higher in areas that are important to all of us, like quality educational programs for our children and health care for our neediest citizens. I support increased tax revenue because I do not want to be ranked 51st in these areas.

Our current consumption-based tax system grows at a slower pace than the cost of services being provided for two simple reasons. First, over the last 20 years, we have dramatically shifted our purchasing away from goods which are taxable to services which are not taxed. Second, under federal law, most purchases made over the Internet are not subject to state sales taxes. It is estimated that Internet sales are costing us over $300 million annually in tax growth.

The current system is unfair. It asks lower-income families to pay a higher share of their income in state taxes because we tax consumption of basic needs, such as food, clothing, gasoline, and driver's licenses. Why do I say this is unfair? A family making $12,600 pays approximately 12 percent of its income in state and local taxes while a family making $159,000 pays approximately 4 percent of its income in state and local taxes. What's fair about that?

I support the flat-tax reform plan because it creates a fairer tax system and represents a long-term solution to the state's funding needs.

This income-tax amount is deductible on your federal income tax return in the same way that you currently deduct home-mortgage interest and property taxes.

The plan does remove the state and local sales tax on groceries, on clothing with a value less than $500, and on nonprescription drugs. This provides some degree of tax relief to low- and middle-income families as well as our elderly population who live on a fixed income.

With this reform in place, Tennessee will also be able to capture the taxes it currently loses from people who work in Tennessee but live out of state. Those who do not live here but work here would now begin paying income taxes to Tennessee.

For instance, professional athletes and entertainers would have to pay to play or perform here just as they do in almost every other state. We estimate that Tennessee lost out on around $120 million in revenue from people who work here but pay no taxes here.

During this legislative session, it has become apparent that a majority of legislators now recognize that Tennessee faces a significant financial problem. To have a balanced budget next year, we must find a way to raise revenue or we must reduce the current budget by $950 million.

I don't want to cut $950 million from existing spending because of the severe consequences it will have on every citizen in this state. I don't think most people who have studied this want that either. The question, then, is: How are we going to raise this money? We can either reform the system by choosing fairness, deductibility, and long-term stability or we can perpetuate the current unfair and inadequate system and continue to have a similar problem in the years ahead.

I'm for fixing the problem. n

Jimmy Naifeh, who represents Covington in the state legislature, is Speaker of the House. This is an abridgement of a longer communication that may be read on the Flyer Web site, www.memphisflyer.com.

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