Channeling for Dollars
Alien Forces at the CapitolThe battle over state tax reform may be escalating from pitched to heated to nasty, but fervent advocates and staunch opponents of reform can agree on at least one thing: An alien force has taken over the body of Governor Don Sundquist. How else to explain the actions of this mainstream Republican governor, whose career devotion to anti-tax rhetoric and policy has given way to serious (if virginally inexperienced) contemplation of the concepts of revenue stability and tax fairness? Unfortunately for reformers, the aliens in charge are having a tough go of it. Sundquist’s path to redemption, however well intentioned, is tactically misdirected, and the prospects for achieving real reform are highly uncertain.
Let’s first give the man some credit: Sundquist and his alien handlers can certainly claim success in reframing the state’s political agenda. The special legislative session on tax reform now under way culminates almost a year of contentious intercourse about Tennessee’s fiscal future. Sundquist started the conversation last winter when he sounded an alarm about impending shortfalls in state revenue. His initial plan to tackle the problem coupled an increase in business taxes with elimination of the sales tax on groceries. By spring, the legislature told him to go to hell.
Channeling through Sundquist, the aliens spent the summer and early fall talking about the need for real tax reform to anyone who would sit still and listen. Advocacy groups pro and con mobilized for a new and bigger battle over the bête noire of Tennessee politics: a state income tax. In late October the governor opened the legislature’s special session with a formal proposal for a 3.75 percent tax on income, elimination of the tax on groceries, a rollback of sales taxes on many other purchases, and some adjustments to franchise, excise, gift, and inheritance taxes. By Sundquist’s math, the plan would turn a $380 million budget shortfall into a $471 million surplus. Response from most lawmakers: you can still go to hell.
Many of us who have long regarded Tennessee’s fiscal house of cards with cynicism and alarm are delightedly astonished at the Governor’s abrupt political mutation. In that context it is disappointing, if on reflection not terribly surprising, that his lavish expenditure of political capital has done more to erect a formidable wall of resistance than to smooth the way for passage of reform. The blame for this turn of events lies in Sundquist’s own strategy for selling tax reform to a reluctant legislature and populace.
The heart of the matter is Sundquist’s inability to defuse the opposition argument about whether a budget crisis that merits major tax reform even exists. Reform foes see the impending revenue shortfall as little more than a downward blip in an already bloated revenue stream. Observing that the amount of the projected shortfall is a relatively small percentage of the overall state budget, they insist that the problem can be solved with modest budget cuts or by eliminating some tax exemption loopholes. Sundquist responds that once you set aside the hefty portions of government spending that are funded in a pass-through manner (for instance, tuition dollars that can only fund higher education), the relative magnitude of the budget dilemma looms large.
He has a point there, but it masks the governor’s core inability to mount a credible argument that tax reform is compelling regardless of one’s pessimism about the state’s fiscal health at any one point in time. He is right to suggest that a revenue stream built on a regime of sales taxes is inherently unstable, and, given how purchasing habits are changing, unsustainable in the long run. But the cornerstone wisdom that Sundquist has grasped only marginally at best rejects regressive sales taxes as a legitimate foundation for funding public services in any circumstance – even if sales taxes are stable and munificent (which, of course, they are not). A graduated tax on income that links wealth with tax burden is preferable to any conceivable combination of sales taxes on simple grounds of fairness and economic justice. Based on his recent comments, it appears Sundquist has come to understand this, but has yet to learn how to articulate it in a way that avoids pandering to his well-heeled conservative cronies.
At the end of the day Sundquist must come to grips with his own and his party’s complicity in creating the very political climate that now frustrates his newly discovered best intentions. It’s not just that he and his party have for years built careers on anti-tax sentiment that he now rejects. Hypocritical – maybe, but hey, anyone can change his mind., and better late than never. In Tennessee’s conservative political culture, it may well be that a converted Republican is far better positioned to move on tax reform that even the most fiscally sophisticated Democrat.
But to pull it off, Sundquist has to come clean – and I mean really clean – on the roots of the dysfunctional atmosphere that threatens to choke reform. It’s not enough to portray himself as a victim or even a participant; he’s been a high priest in the religion of fiscal denial and its consequent social and economic injustice. He must condemn his past, not just disown it, and in doing so lead others by example to recast their foundational assumptions about the nature of government. Getting your fellow travelers to change their minds and see the light requires more than just calling them stupid because they happened not to be abducted by the same aliens at the same time you were.
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