During the campaign for Governor, Mayor Haslam often said that people suggest government be run like a business until someone actually tries to. Then hard choices have to be made.
I took that to mean Haslam would do what was needed to make and keep Tennessee competitive and vibrant; that he would control costs, spend wisely, lower taxes and do the myriad other proven things that increase productivity and profitability in both business and government.
Since the election, though, I’ve found reasons to reconsider my optimism.
The Governor has handed out hefty raises to his Cabinet in the midst of economic challenges for government and taxpayer alike. The Governor strongly supported addressing the issue of teacher tenure in the area of education reform but politely distanced himself from meaningfully addressing collective bargaining for teachers in the area of fiscal responsibility. Now the Governor has said that he is “… willing to take a leadership role among governors in urging Congress to pass a national approach to collecting sales taxes on goods sold over the Internet.”
Governor Haslam says Tennessee is losing $300 to $500 million annually in untaxed sales on the Internet. He wants that money in Tennessee’s account, not in Tennesseans’ accounts. That might be a win for Tennessee’s budget but it hardly seems so for the budgets of Tennesseans.
Tennessee’s 2012 budget is $30.8 billion. Haslam’s estimate of revenue loss works out to just 1% to 2% of the current budget. Based on Haslam’s figures and Tennessee’s base state sales tax rate of 7%, Tennessee businesses sell between $4.3 and $7.15 billion annually via the internet. That is just 2%-3% of Tennessee’s 2010 GDP of $250 billion. I don’t see the same upside the Governor sees in risking so much for so little.
Because there certainly is a downside.
Goods and services will get more expensive for Tennesseans. Actually, as Haslam’s Sales Tax is a Federal tax, he’ll make life more expensive for all Americans! I wonder how the rest of America feels about Tennessee’s Governor working for their taxation from an arena in which they have no representation.
Haslam’s figures assume Internet sales will remain steady or grow. Yet taxes suppress the production of whatever is being taxed. Sales taxes slow sales as income taxes slow productivity and “sin” taxes curb behavior. Revenue projections from increased taxes never seem to work out quite like their champions promise.
Haslam’s Sales Tax has no clarity on rates or rules. Anything could happen. Tennessee has one of the nation’s highest base sales tax rates. If Haslam’s Sales Tax is collected based on the seller’s location, Tennessee businesses just got a lot less competitive. If it’s collected based on the buyer’s location, Tennesseans just saw their buying power sucker punched.
If buyers buy less it means lost sales and lost sales taxes. This includes purchases made by businesses.
Businesses sell less or grow more slowly if at all when forced to increase costs. That means less sales tax revenue. Flat sales and growth mean cuts in labor. Tax increases reduce employment. The unemployed spend less meaning additional losses in revenue. It means increased unemployment insurance costs for businesses, enhancing the downward spiral in employment and revenue.
Just as businesses are fleeing Illinois in the wake of increased taxes, businesses will leave Tennessee or never come in the first place. This means lost sales tax, lost jobs, lost employee and business spending, lost property taxes and more. Implementing Haslam’s Sales Tax could end up costing us more than what the Governor hopes to capture in the first place.
Candidate Haslam promised to work to make Tennessee’s economics sound. Governor Haslam should listen to him. This is not the way to move Tennessee forward. It is not the way to economic growth. It is not the way to solve budget challenges and it is surely not where we want our Governor to lead us.
Comments are open … What say you??
FOR MORE TENNESSEE COMMENTARY ON THIS – SEE ALSO:
Stealing Haslam’s Money by Lesley Swann @ The Tennessee 10th Amendment Center;
Uncollected Internet Sales Tax Unfair by Roger Harris @ Knoxville News Sentinel;