Tennessee Waltz:  When a Tax Cut is a Tax Increase

Sam T. Harper

May 2007

FRANKLIN COUNTY, Tn -- Last fall in Tennessee during the hubbub of the senate election race between Bob Corker and Harold Ford, Jr., a little watched and commented upon referendum passed. The referendum, which won with 80%+ of the vote, states that the Tennessee General Assembly can authorize cities and counties to freeze home property taxes for homeowners 65 years and older at the rate on the date of passage of the amendment, the date the owner turns 65, or the date a 65+ year old purchases the property.

"Any taxpayer or taxpayers who own residential property as their principal place of residence whose total or combined annual income or wealth exceeds an amount to be determined by the General Assembly shall not be eligible to receive the tax relief."

In the same election, our Governor ran on a platform that included (albeit a small issue) raising tobacco taxes "for the children", i.e., to spend more on schools. He won all 95 counties (a Tennessee first). (His GOP opposition was minimal.)

So in one voting booth visit, Tennesseans overwhelmingly voted for a candidate proudly saying he planned to raise taxes and voted overwhelmingly for a constitutional amendment that froze property taxes for older citizens.

All this sounds like we are bipolar here in Tennessee.

I don't think we are. To explain this, I have come to re-realize a lesson that I should have remembered from my political days in California: bond and constitutional referendums are never as good as they sound.

I wonder if we did not make a mistake voting for the property tax relief amendment last November. Full disclosure: I voted for it!

Now I realize that it may well have been a deceptive move.

Here's why.

Since its implementation by the General Assembly, there is little chance that any county or municipality will refuse to provide the tax freeze. As reported in the January 25 Chattanooga Times Free Press, "There will be tremendous pressure at the local level to extend true property tax relief for the elderly, now that they can,...".

After that statement comes the inevitable big BUT.

In the same Times Press article cited above: "Dr. (William) Fox (University of Tennessee economics professor) said a freeze on taxes for the elderly would shift the burden of funding government to other property owners and businesses."  This last point has produced much belly aching and hand wringing by county and municipal mayors. They're asking: How can they balance already tight budgets by reducing one source of income (property taxes from elderly property owners) without raising the property taxes of another source (other property owners)?

I have not found one word from the mayors on adjusting their budget expenses to absorb the tax freeze. But, of course, we conservatives are not surprised when politicians refuse to see the possibilities in expense reductions. We know from personal experience, that when there is a reduction in income, there needs to be a reduction in expenses.

I foresee announcements for property tax increases for those of us below 65 years old using the words "inevitable"; "Hey, you voted for it."

It occurred to me during some recent windshield time that there is a solution to all of this.

It is now evident that the reality of the amendment is that it is not tax relief, but, as Hamilton County (Chattanooga) Commissioner Richard Casavant has stated: "It is redistribution of wealth...".

Well, now that we have correctly identified what the amendment means (i.e., not tax relief) let's utilize it the best way possible. Our seniors have the advantage of wisdom and experience in how things work, so let's empower them to determine how THEY want to redistribute THEIR wealth. 

Here's how:
--. Don't institute lower tax rates for seniors.
-- Create a tax base rate for seniors. This would be equivalent to the rate they would have received from the amendment.
-- The difference between One and Two, Above,  would be given to the seniors as a voucher.
-- This would be given to all seniors; no income restrictions.
-- Government would lose no money; just their bureaucratic way of distributing it.

Let the seniors determine how they want their voucher money spent. They could sell/give it to families with school kids who in turn could turn it in to their favorite school thus increasing that school's budget; they could give it to the garbage department because they are impressed with its service; they could pool it with the vouchers of neighboring seniors to get the road in front of their homes repaved; they could give it to the municipal recreation center to fund an aerobic aquatics instructor; they could us it to keep the lights of the municipal tennis court on at night; they could use it to keep the municipal swimming pool open the hours they want to use it; they could ... .

The choices are unlimited. Government department heads would suddenly find value in implementing "customer first" attitudes. Our biggest underutilized source of wisdom and understanding - the seniors- would now have a vested interested in where to spend their own tax money.

I, like Ronald Reagan, trust American citizens to know how best to spend their own money.

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