No, Tennessee Does Not Have the "Most Regressive" Tax System

[Editor’s note: This piece originally appeared on the Beacon Center of Tennessee’s blog.]

“Fed study: Tennessee has most regressive tax system,” barked an ominous Chattanooga Times-Free Press headline on May 27. After poring over a recent Federal Reserve study, business reporter Dave Flessner concluded that it “found that Tennessee has the most regressive tax system of any state, requiring poor and middle-class taxpayers, in most instances, to pay a bigger share of their income than do wealth individuals in the Volunteer State.”

But the study examined the impact of each state’s tax system on whatever income parity the federal tax code achieves, not the relative regressiveness of state tax systems. In other words, the study measured how effectively the federal government redistributes wealth (if not for those pesky, meddling states). This is a very important distinction, but Flessner seems to have either missed or ignored it altogether. More troubling was that Flessner published as facts the talking points of a local liberal pro-income tax group, Tennesseans for Fair Taxation (TFT), that has ties to Big Labor advocates and D.C. groups.

What were these controversial talking points?

“Low-income people often pay 10 percent or more of their income in sales and property taxes (often paid through rent),” Flessner wrote, “while upper-income people in Tennessee may pay only 2 to 3 percent of their income in state taxes because much of what they spend their money on or earn income from is not taxed.”

Claims like these fail to mention that 2 to 3 percent of a $250,000 income in taxes ($5,000—$7,500) is double to triple what 10 percent of a $25,000 income would yield ($2,500). Tax burden as a share of income is an arbitrary metric, in other words, and to use it is disingenuous when a wealthy person pays triple in taxes what his or her working poor counterpart pays. Analysis in a 2007 Tennessee Advisory Commission on Intergovernmental Relations report on local tax burdens in Tennessee’s 95 counties buttresses this intuitive claim: data show that, while they pay a lower percentage of their income in taxes, the wealthy pay higher taxes in terms of nominal dollars.

Furthermore sales taxes—any consumption taxes, really—are by definition the most equitable form of taxation known to man. Literally everyone pays the same rate! There is no such thing as an offshore bank to shield my earnings from the sales tax Publix collects when I buy my groceries every week. No army of accountants could ensure that I pay five cents on the dollar in taxes for a pair of pants while you foolish rubes pay the full 9.25 percent. Every taxpayer consumes a baseline amount of subsistence. But because wealthier people are more likely than poorer people to buy fresh produce, ample proteins, and the like, and those items cost more money than cheap, accessible, sugary snack foods, wealthier people will spend more per capita on subsistence and, therefore, pay more in taxes overall. Put another way, when a wealthy person buys more, bigger, higher-priced stuff than does his or her working poor counterpart, at the same level of taxation, he or she therefore contributes a higher share of tax dollars to the overall state revenue pool.

At least Flessner sought comment from Beacon Center CEO Justin Owen, despite giving multiple column inches to the pro-income tax movement that is still licking its wounds after being defeated by a constitutional amendment to ban a state income tax last fall. To his credit, Flessner also clarified to me by email the day after his piece ran that TFT Chairman Dick Williams had fed him some of the claims he made in his piece. But neither he nor the Times-Free Press have yet corrected the item, or provided much-needed context—even simple attribution. Giving cover to the champions of so-called progress while tendentious headlines excoriate proponents of economic freedom cheapens legitimate policy discourse, and Tennesseans deserve better from the Fourth Estate.

George Scoville is a public affairs strategist, blogger, and adjunct professor of American government at Belmont University in Nashville, TN. He earned bachelors degrees in philosophy and political science from Belmont in 2009, and a master of public policy from American University in Washington, DC in 2011. This is a guest blog post and does not necessarily reflect the views of the Beacon Center.