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April 23, 2017
While we sell homes, we drive around a lot doing it. Not only are the conditions of the roadways important to Realtors, but the cost of fuel has to be factored into our bottom line. We all have in interest in the roads, cost of fuel and the reputation of Tennessee. Hopefully this information out of one of the legislator’s offices will help with an understanding of the legislation recently passed which will raise the amount of taxes we pay for gasoline.
The Improve Act is a complex bill to fund $10.5 billion dollars of highway projects in Tennessee, thus all the controversy. The bill realigns Tennessee’s tax system. The tax increases which have made so much news are actually more than offset by tax reductions for Tennessee families. The bill leverages purchases by out of state tourists, travelers and truckers ensuring that they help by contributing a greater amount to Tennessee’s state highway system.
A 20% food tax reduction will help all Tennessee households. The 20% Hall Income Tax reduction will help retirees. The F&E tax reduction will bring increased capital expansion, more jobs and better jobs to Tennessee. The gas tax increase is much smaller than the food tax reduction especially considering that 1/3rd of the increase is paid for by out of state tourists and travelers. All of this restructuring will build new and better roads in Tennessee – aiding public safety, easing congestion and fostering economic expansion.
There is no doubt, this was a difficult vote. To my knowledge Tennessee has never realigned tax rates in this way, and no one wants to be accused of raising taxes. But as you will see, even the Americans for Tax Reform believe realignments of rates are sometimes necessary and if they produce a net reduction in taxes – which the Improve Act does – then the General Assembly has not raised taxes.
With that said, I hope everyone will look forward to getting our roads done sooner rather than later!
Below FAQ’s about the Improve Act. I have addressed the bill, the economic theory and even the fake news.
WHAT IS THE IMPROVE ACT?
The Improve Act is Governor Haslam’s bill to provide money to fund Tennessee’s backlog of road projects. There are 962 projects in all, totaling over $10.5 billion. Nine of the projects in the Improve Act are in Wilson County, totaling over $250 million.
HOW DOES THE IMPROVE ACT WORK?
The Improve Act adjusts Tennessee’s tax rates to direct much of the surplus to the Highway Fund to the General Fund.
WHAT DOES THE IMPROVE ACT LEGISLATION DO?
The bill restructures tax rates to provide more funding for our roads. It does so by simultaneously adjusting taxes in both the General Fund and the Highway Fund. The bill cuts the food tax by 20%, the Hall Income tax by 20% and provides funding to build our roads by redirecting the surplus to the Highway Fund.
I HAVE HEARD THAT THE GOVERNOR’S LEGISLATION IS JUST A HUGE TAX INCREASE.
That it is not. The Improve Act lowers taxes much more than they are raised by tens of millions of dollars.
The final bill is both revenue neutral to the state and pocketbook neutral to most Tennesseans.
HOW ARE THE RATES ADJUSTED?
General Fund Tax Cuts = $293 million
Sales tax on food is cut 20%; total $125 million
Hall Income Tax is cut 20%; $55 million
Franchise and Excise Taxes cut for factories; total $113 million.
Highway Fund Increases = $157 million in FY17 | When fully implemented $262 million
Gas tax rises in stages -
Diesel tax in stages -
Vehicle Registration Tax – increases by $5.00 totaling $33.8 million
New Electric Car Vehicle Registration Tax – $100.00 totaling $250K
WHY NOT JUST TRANSFER THE BUDGET SURPLUS FROM THE GENERAL FUND TO THE HIGHWAY FUND?
The Governor might have done that but then Tennesseans would not enjoy a reduction in the food tax nor would Tennessee leverage the fact that tourists, travelers and truckers pay 1/3 of Tennessee’s gas tax and 1/2 of Tennessee diesel tax. The bill allows Tennesseans to enjoy a 20% reduction in the sales tax on food and has tourists, travelers and truckers pay a greater share for Tennessee’s roads?
Of course, every family will have their own calculous so be sure to figure your own food tax vs gas tax. The simple formula is that the food tax will reduce by a $1 for every $100 you purchase. The gas tax will increase by 40 cents for every ten gallons you buy. If you just paid the Hall Income Tax – you can expect a 20% reduction next year.
Because of the Improve Act, millions of Tennesseans will save more due to the food tax reduction over the gas tax increase.
Another benefit is that the bill maintains the user fee concept; General Fund taxes do not act as user fees as the gas tax does.
ECONOMICS BEHIND THE BILL
WHY ARE TENNESSEE’S GAS AND DIESEL TAXES AN EXCISE TAX?
Excise taxes provide price stability for consumers concerning products whose price tends to fluctuate, such as gasoline. For instance, when gas is $2 per gallon, the gas tax is 20 cents per gallon. However, if the price of gas doubles to $4 per gallon the gas tax is still only 20 cents per gallon. Under a sales tax, a doubling of the price would double the tax.
I’VE HEARD PEOPLE CALL THE HIGHWAY FUND TAXES USER FEES. EXPLAIN.
The gas tax pays for building and maintaining Tennessee’s roads. A true user fee is a toll system but toll systems are oppressive, tiresome and inconvenient. The gas tax acts as user fee because one cannot drive their car without gas.
Therefore, the tax on gas serves to act as a fee for using the roads, and the fee is paid when the gas is purchased. A user fee is also proportional to use, those who drive little, use the roads less, they also purchase less gas so they pay less tax than those who drive more.
WHAT IS SO GREAT ABOUT USER FEES?
User fees are a conservative as well as a Republican concept for funding government services. The user fee’s very nature is anti-
Conversely, the more socialist a government the more the government exacts heavy general taxes that tend not to benefit the people who pay the most. The infamous Marxist mantra; From each according to his ability to each according to his needs is the reverse of the user fee.
The role of government is to do only those things that people or businesses cannot do for or by themselves. For instance, you cannot build a bridge or a highway, or ensure public drinking water is clean, nor could you likely build a great public university, or coordinate the statewide eradication of the boll weevil.
However, it is also true that not everything in government can be user fee based but as much as can be should be. For instance, K-
The state once tried charging users of state parks but that was very unpopular – no one liked having to bring cash with them to get in the park so the fee was repealed.
However, if you are a hunter, fisherman or boater you pay a user fee through a license. This fee pays for the operations and services of the Tennessee Wildlife Resources Agency (TWRA).
Our state colleges and universities are part user fee (tuition) and part tax payer subsidized through the General Fund. However, not for out of state students – they pay the full cost with no tax payer supported subsidy.
Tennessee has some of the best roads in the country. We have done this with cash – no debt is owed, and we have done this entirely through a user fee system.
WON’T TRUCKERS JUST RAISE PRICES TO MAKE UP FOR THE TAX INCREASE CAUSING THE PRICE OF GOODS TO GO UP AT THE STORE?
Probably not. We asked UT to examine the effect of raising the diesel tax. For every $100 of value on a truck we can expect to see trucker’s cost increase .4 tenths of 1%.
I HAVE READ THAT THE GOVERNOR’S FAMILY BUSINESS WILL PROFIT FROM THE TAX INCREASE.
Not true. This fake news assumes that gas stations would invest the collected tax revenue in order to earn income before the tax is due – making money from the “spread” between the date the gas was sold until the tax is remitted.
However, that is not how the gas tax works in Tennessee. The tax is due when it comes over the border and the distributor takes possession of the commodity. When stations collect the tax at the pump, they are only being reimbursed for the tax that they have already paid to the state of Tennessee.
WHY DOES THE IMPROVE ACT CUT THE FRANCHISE AND EXCISE TAXES FOR FACTORIES?
Tennessee has some of the highest franchise and excise taxes in the country, placing us at a competitive disadvantage with other states. The tax is especially harsh for factories; the effective rate of the two taxes is 120%. This is because 1 of the 3 factors on which the tax is based, weights the value of equipment, buildings and other assets especially harshly for asset heavy operations such as factories. As a result, Tennessee is NOT an especially attractive state to expand manufacturing operations nor to establish capital heavy businesses like factories.
ROAD PROJECTS IN THE BILL
HOW WERE THE ROAD PROJECTS IN THE IMPROVE ACT IDENTIFIED?
The road projects in the Act are from a list of unfunded road projects that has been growing for a very long time.
WHO CREATED THE LIST?
The road projects on the list were identified by Tennessee’s county and city mayors.
HOW AND WHEN DID THEY CREATE THIS LIST?
The mayors work together to plan the roads through regional organizations to which each belong by virtue of their elected office. Each organization is either a Metropolitan Planning Organization or Rural Planning organization; MPO or a RPO. Wilson County’s mayors belong to the Nashville MPO along with the mayors from Sumner, Rutherford, Williamson and Davidson Counties.
MPO’s and RPO’s are federally mandated and funded. Created in 1988; the mayors have been coordinating with each other to plan state road needs since that time.
HOW DO THEY DECIDE UPON THE NEEDED PROJECTS?
The mayors meet once a month to discuss their individual local needs. By sharing this information with each other they develop a prioritized list of projects which they give to TDOT to inform the department of our local state road needs. The MPO/RPO’s have staff that work with TDOT to determine cost estimates, and to coordinate with ongoing projects – this is done to develop a time-
The list of unfunded projects has been growing for a very long time because Highway Fund revenue hasn’t kept up with our fast-
HOW DO THE MAYORS KNOW WHICH PROJECTS SHOULD BE ON THE LIST?
Citizens have a lot of influence as to which projects are on the list. By discussing observations with our mayor, he learns information to bring up to the MPO. The chief concerns are accident data, traffic congestion and new growth which a mayor may learn about through a developer seeking zoning changes or building permits through the city or county government