What’s Worse Than Cancer? Taxes!

Two different op-eds applauding the legislature’s phased repeal of the Hall income tax popped up on The Tennessean‘s website over the weekend, overtaxing (semi-intended) the ability of headline writers to find different ways to say the same thing. One piece (“Repeal of Hall Tax Will Bolster Tennessee’s Economy“) is by Raul Lopez of a PAC called Latinos for Tennessee, the other (“Hall Tax Repeal Will Benefit Tennessee’s Economy“) is by Joe Horvath of the America Legislative Exchange Council (ALEC), the Virginia-based public policy outfit bankrolled by big business and right-wing foundations that pushes its corporatist conservative agenda in state legislatures. The Hall repeal measure awaits action from Gov. Bill Haslam — the bill hit his desk today — who has spoken approvingly of cutting the tax but isn’t so crazy about eliminating it; still, a veto seems unlikely.

Certainly there are valid grounds for quarreling with the Hall tax, which is just another cog (and a relatively small one) in the convoluted wheel that is Tennessee’s dysfunctional tax system. But the op-eds by Lopez and Horvath are quite remarkable in their combined ability to advance the most preposterous notions of the nature and role of taxes in Tennessee’s economy.

The Lopez column basically parrots the relentless illogic of the market-conservative Beacon Center of Tennessee, a free-market anti-tax outfit that longs for the libertarian paradise of a future Tennessee in which nobody pays taxes or has health insurance. Citing Beacon, Lopez acknowledges that the Hall tax revenue accounts for less than one percent of the state budget, but at the same time calls repeal “absolutely vital in order to ensure that our state remains competitive.” If it’s “absolutely vital” that we repeal a tax with such minor budgetary impact to stay competitive then we have bigger problems than just the Hall tax.

ALEC’s Horvath traffics in the same kind of trickle-down fantasy dogma, with a dose of cause-effect sophistry thrown in. He approvingly quotes Senate sponsor Mark Green’s bizarre assertion of a “lack of investment in Tennessee due to the Hall tax.” Yes I’m sure many firms are choosing not to invest here because we have a tax on investment income (like most states) that accounts for a tiny part of the state budget. Horvath applauds Tennessee’s ranking of seventh among the states in ALEC’s “economic competitive index,” which gives props to states for having low taxes and services, low wages, hostility to labor, and a tort litigation system tilted in favor of businesses over consumers and workers. Yep, we’re competitive all right.

Horvath says for states to be competitive their “crushing tax burdens” must make way for private industry. What neither of these guys mention, of course, is that Tennessee’s brand as a destination for investment is one of low and regressive taxation that punishes the poor and fails to adequately fund essential services (like education and health care). According to figures compiled by the independent Tax Foundation, our “crushing tax burden” has us ranked 45th among the states in taxes as a share of state income and 44th in tax collections per capita (47th in overall revenue/capita). We lead all states in having the highest combined state and local sales tax rates, which is what really burdens Tennesseans of limited means. And let’s not forget that for all the right-wing talk of how much we are oppressed by Washington, Tennessee is a taker not a maker: we rank 3rd among the 50 states in the percentage of state revenue that comes from federal aid. Oh, and we’re also a top 20 state in income inequality.

It’s lovely in the abstract to be (and be perceived as) a low-tax business-friendly state, but to isolate an analysis of taxes from a larger conversation about public services and social progress is ludicrous. Is it really controversial to surmise that a significant corporation contemplating investment in Tennessee is going to pay a lot less attention to the phasing out of the Hall tax than to the current and future state of our systems of education, environmental quality, and public health?

A version of this post appears on the Nashville Scene‘s Pith in the Wind blog.

FedEx Thou Doth Protest Too Much

A cranky op-ed by a FedEx executive in today’s Tennessean calls the paper out for its “deeply flawed and erroneous report insinuating that FedEx is less than a full-rate taxpayer.” FedEx VP Michael Fryt is responding to a recent Tennessean story about the DC-based Citizens for Tax Justice’s analysis of Fortune 500 companies that paid no federal income taxes during at least one year since 2008. FedEx made the list twice, for having “paid” federal income taxes at a rate below 0 percent in both 2009 and 2011. As The Tennessean further reported, FedEx paid an effective federal income taxrate of 4.21 percent over the five year period of the study.

Blasting the CTJ report as “compiled by a heavily biased, partisan advocacy group,” Fryt asserts that FedEx “is a full-rate taxpayer and that we pay all the taxes owed to local, state, federal and foreign governments.” Declaring that “the effective income tax rate for FedEx has been no lower than 35 percent in each of the past 20 years,” Fryt calls the analysis misleading because it takes accelerated depreciation into account (as well it should), and he criticizes The Tennessean for printing the story “without contacting us.”

What Fryt and FedEx are doing here is blaming the messenger (two of them, actually) and responding with their own conveniently misleading version of events. But the careful reader will note that something Fryt and FedEx are not doing is denying the empirical truth of the CTJ’s findings.

How is it, you may ask, that the CTJ report can show FedEx paid less than 0 percent (meaning, received a rebate) in federal income taxes in two separate years while a FedEx executive insists that “the effective income tax rate for FedEx has been no lower than 35 percent in each of the past 20 years.”? Both statements can’t be true, right? Someone must be fibbing here?

Not necessarily. The key here probably lies in Fryt’s careful wording, “the effective income tax rate for Fedex…” Note the absence of the word “federal” between “effective” and “income.” Corporations pay not just U.S. federal taxes on income, but also state as well as foreign income taxes. That same CTJ analysis reporting FedEx’s effective rate of 4.2 percent in U.S. federal income taxes between 2008 and 2012 found that the company paid a much higher rate (57.7 percent) to foreign governments on its overseas pretax income. My assumption is that FedEx is counting all forms of income tax (that omission of the word federal is presumably no accident), and in so doing hopes to lead readers to believe that the zero tax years and astoundingly low effective average federal tax rate revealed by CTJ and reported by the Tennessean are factually inaccurate. But if you read Fryt’s op-ed carefully you’ll notice that he never actually repudiates the accuracy of CTJ numbers. Why? Because he can’t.

As mentioned above, Fryt and FedEx righteously assert that the firm pays all taxes owed to all governments. This is a classically defective straw-man argument; nobody claims otherwise, and neither the CTJ analysis nor the Tennessean story intimated that FedEx isn’t meeting its obligations under the law. As far as I’m concerned FedEx is a great American company, one that treats its people well and plays by the rules. A key aim of the CTJ analysis is to show the extent to which copious loopholes and tax breaks legally enable corporations to minimize their income tax obligations.

Fryt concludes his op-ed with familiar corporate whining that U.S. corporate income tax rates are among the highest in the world, creating a tax system that “is seriously flawed and hurts U.S. economic growth and competitiveness.” He’s right that statutory corporate tax rates in the U.S. are among the world’s highest, but it’s also the case that the actual rate large profitable corporations pay is typically less than half the statutory rate.

Fryt and FedEx may not like hearing these realities when they are foisted upon them (accurately) by a “heavily biased, partisan advocacy group.” Ok, then, how about that leftist commie Warren Buffett: “It is a myth that American corporations are paying 35 percent or anything like it…corporate taxes are not strangling American competitiveness.”

A version of this post appears on the Nashville Scene‘s Pith in the Wind blog.