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California City Unfairly Taxes Church

Through the Pacific Justice Institute, Valley Baptist Church in San Rafael, Calif., brought a lawsuit against the city for a 2010 tax that charges up to 14 cents per foot per year for “non-residential structures,” even though churches and other religious non-profits should be exempt from this type of property tax. City officials decided the church owed $13,000 for several years of back taxes for this special tax.

Said Pacific Justice Institute President Brad Dacus, “The California Constitution exempts churches from paying such taxes, pure and simple. Valley Baptist did not owe a penny to the city of San Rafael, and it’s unfortunate that the church now has to go to court to win back money that it never should have had to pay to begin with.”

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close up of a hand holding a calculator and a grocery cart

Could Reducing Taxes on Bread Create a Hot Potato?

Tennessee’s legislators are faced with a decision—what do they do with a surplus of almost $900 million in recurring revenue? Many will want to spend it on “improving” existing government programs by growing them. Last week I said they could consider using the money to buy some freedom from the federal government. Another possibility getting lots of discussion is to “spend” it by cutting taxes. But if that’s what legislators do, then they better be careful.

The problem I’m envisioning relates to the choices we will be left with when the next economic downturn occurs, and it will occur at some point. I am particularly sensitive to this, since I spent four of my years in the state Senate discussing what to do in an economic downturn when our recurring expenditures were exceeding recurring revenue.

The question then was whether we could cut our way out of the income-expenditure discrepancy. But we ran into problems with that.

I no longer remember the exact percentages, but I know that the amount of the budget we could cut without unwanted or very unpleasant ripple effects was limited, mostly because of federal mandates and the effect a state cut would have on the receipt of matching federal dollars.

For example, a $1 reduction in spending related to TennCare resulted in the loss of $2 in federal matching funds, meaning we had to actually cut TennCare by $3. There were similar problems relative to any number of budget categories, from education to even state parks where federal funds had been received to make park improvements.

So cutting is hard. It is not always as simple as just cutting state spending across the board by some percentage. When you can’t cut some program because of federal mandates and federal matching funds, then those programs that can be cut have to be cut at drastically higher rates.

If you can’t cut your way out, then that leaves a sales tax increase as the alternative. And here is where the problem will come if taxes are now cut the “wrong” way.

If legislators focus their sales tax cuts on one of the most stable parts of the sales tax base, then the amount of sales tax increase needed will have to be higher than it otherwise would be to meet the revenue need. For example, in an economic downturn, people will still buy groceries, but they will put off buying a new car, television, or refrigerator. When that happens, the amount of sales tax revenue drops even more precipitously because fewer items subject to the sales tax are being purchased.

The chart below provides a hypothetical that, for the sake of simplicity, assumes the tax on groceries is eliminated and consumers put off the the purchase of other items while the economy is down.

 Sales Tax Rate  No. of Food Units Subject to Tax  No. of New Cars Subject to Tax  No. of New TVs Subject to Tax  Total Revenue for Units Subject to Tax
 7%  100  100  100  $21
 7%  sales tax on food units eliminated  50  50  $7

 

As you can see, the sales tax rate would have to go up substantially in order to continue generating $21 annually. In fact, the rate would have to increase to 21 percent to generate the same amount of revenue. Of course, when sales pick up, the government will have another revenue windfall.

So if legislators greatly reduce the sales tax on food (or some other relatively stable part of the sales tax base), as is being discussed by some, when the next income downturn comes, they may find themselves in a bigger mess than if they had made an across-the-board cut in the sales tax rate.

Cuts, as explained, will be hard. It will be very unpopular to put the sales tax back on food and it will be equally unpopular to really jack up the sales tax rate on everything still in the tax base, particularly given how high it already is.

While many may think a big cut in the sales tax on groceries would be the best thing since sliced bread, if legislators aren’t careful, they may wind up with a political hot potato in the years to come. I should know; I got caught holding one years ago.


David Fowler served in the Tennessee state Senate for 12 years before joining FACT as President in 2006. Read David’s complete bio.

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Donald Trump and the American Flag with Linda Fowler's wedding photo and the Tennessee Capitol

Mr. Trump and Tennessee’s Legislators Need My Wife’s Advice

Soon after I got elected to the Tennessee Senate, my wife, Linda, gave me some blunt, good advice. It’s the same advice I hope someone will give to President-elect Trump, and it’s advice I’m going to give to our legislators in Nashville.

The advice my wife gave me was in the context of an issue I got confronted with within weeks of being sworn in. I had promised not to raise taxes, but it seemed every prominent local community leader wanted the state to pass a new tax for local governments that would allow them to raise new tax revenue to build a football stadium and expand our local trade center. Since it required a new state law, I had to vote on the tax bill. I was on the hot seat.

I told my wife that the tax was really a local tax and arguably I’d only said I wouldn’t raise state taxes. But the reason I was trying to rationalize the difference between state taxes and state-authorized local taxes was because, as I told my wife, the folks calling were prominent, wealthy people who had the ability to recruit and fund an opponent in the next election cycle.

I really hate to admit that such rationalization crossed my mind so quickly in my political career, but it was good that it did, because it allowed my wife to crush it.

As I mentioned to her the names of those calling to tell me it was “okay” to vote for the tax law, my wife said (and this is a pretty accurate exchange):

LINDA: I don’t remember you mentioning any of those names during the campaign. Did any of them support you?

DAVID: No.

LINDA: Well, didn’t you win without them?

DAVID: Yes. (Said quietly and meekly.)

LINDA: Then it sounds like they aren’t that important anyway. Just do the right thing.

She cinched the political compromising and rationalizing deal for me from that day forward.

And my wise wife would say the same thing to Mr. Trump and to the Republicans in Nashville relative to the pushback they will now receive from the elite and particularly the mainstream media.

Mr. Trump, you won the election with the mainstream media squarely against you, so don’t start worrying now about what they will say when you follow through on what you said you would do. The American people demonstrated that they can cut through the lies and bias. Four years from now, if you try to tell us you did what you said, when you didn’t, we’ll cut through those lies, too. Do what you said you would do, and you won’t have to worry about whether those who actually supported you will turn on you.

And state legislators, you, too, need to ignore the media and all the threats from the gay activists if you don’t cow-tow to their agenda. North Carolina has been under constant attack since spring for voting for a law that kept bathrooms and locker rooms differentiated based on biology instead of psychology. No governor was under greater attack. And while Gov. McCrory’s race is still too close to call, the fact that it’s even close with all the forces from across the nation that came against him is itself a mini-miracle. But the critical fact is that Republicans picked up a seat in their state Legislature and their Lt. Governor, outspoken on the bathroom legislation, won by six points.

Our legislators need to vote the values of our citizens, not the values of those who write editorials for our state’s newspapers or the values of the Human Rights Campaign in D.C. and their corporate lap dogs, most of whom have their corporate headquarters in California. They do not represent the basic values of most Tennesseans, and they have never been elected. Don’t let them influence, much less dictate, what you do.

My wife taught me a valuable political lesson early on. I hope Mr. Trump and our legislators have equally wise spouses. If they don’t, and if they start worrying more about the opinions of those who were against them than those who were for them, then they may find themselves spending more time at home with their spouses after the next election cycle.


David Fowler served in the Tennessee state Senate for 12 years before joining FACT as President in 2006. Read David’s complete bio.

FACT-RSS-Blog-Icon-small Get David Fowler’s Blog as a feed.

Invite David Fowler to speak at your event

Capitol building amongst the trees

Bringing Washington Budget Policies to Tennessee

Is Washington in a mess budget-wise because it spends more money than it takes in? Yes. Is that the reason Washington is in a mess budget-wise? No.

Obviously a budget deficit mathematically represents spending in excess of revenue, but is the deficit the problem or a symptom? I confess I don’t know as much about the national budget (of course, they haven’t actually passed one for two years either) as I do the state budget, but it seems to me that a major problem in Washington is that slightly over 50% of Americans no longer pay federal taxes. And when half the people don’t pay taxes, it’s easy for them to want more benefits paid for by other people’s money. And since we like to get things, it’s easy for politicians to succumb to giving us things and before long, they’re giving out more than they’ve got money to pay for.

With President Lyndon Johnson, the war on poverty and the great society really got going, and it just kept growing. And it got out of hand. Perhaps when this mess all started we didn’t see where the premise would lead us or, if we did, the initial cost wasn’t so bad. After all we were a wealthy country, and we had the money. So why not help out the less fortunate. And now look where we are.

Well, if we’re not careful our state politicians are about to start down the same path – if we have some extra money, why not help folks. In this case, the Tennessee Democratic Party has proposed that if state tax revenues continue to rebound that we use part of the extra money to reduce the sales tax on groceries and use the other part to pay for more college scholarships. And, to be honest, many Republicans have clamored for the same thing. In my opinion, it’s bad idea.

I know some conservatives would be shocked to hear me say that. To them we should reduce taxes whenever there is an opportunity and starve the government into submission. I’ve got no problem reducing taxes, and I’ve got no problem putting the government on a diet. So what’s my problem?

My problem is the trend – reduce what people have to pay in taxes while increasing the “goodies” we give away. Lower revenue and increase expenses. Sounds like Washington to me.

You see, we are a sales tax based state and payment of sales tax is often the only thing that keeps those who would want more state government benefits from clamoring for them. Having a sales tax makes them have to pay some of the cost of the benefits they want. It helps us avoid the situation in Washington. Everyone having some “skin in the game” because they aren’t exempt from sales tax helps keep everyone from voting themselves money out of the state treasury.

Furthermore, the tax on groceries is the broadest, most stable part of our sales tax base because we exempt so many other things (that’s also why the sales tax rate we do have is so high). So, in an economic downturn, the tax that keeps the bottom from completely dropping out is the sales tax on those items we have to keep buying. After all, in a bad economy, you will buy food, but you will put off buying the new car, refrigerator, washer and dryer, sofa, etc. These are the big-ticket items that can produce a lot of sales tax in one fell swoop. But they are also the items you put off buying in a bad economy.

So, take the sales tax down or off of food, and we have a fiscal mess that starts to look like Washington. The people who have been getting benefits and will be getting the increased benefits will not want to give them up. They aren’t paying for them anyway. And the politicians who gave them those benefits know that the benefits got or kept them in office so taking away benefits is tantamount to giving up your office. No elected official (or very few) are willing to essentially vote themselves out of office. So, you have Washington.

I, for one, am for leaving the Washington approach to taxation and public benefits in Washington. We don’t need to duplicate their problems here too.