It may sound counter-intuitive but in order to reduce the tax burden, Shelby County Mayor AC Wharton says we need a new tax.
Recently, Mayor Wharton became the latest elected official to propose a “privilege tax,” AKA payroll tax, to get some tax revenues from commuters coming into Shelby County to work.
While he said that more money is needed for public health and safety, we’re hoping that the privilege tax will become central to the tax reform needed in this city and county, reducing the oppressive tax burden that amounts to a major disincentive to remaining on this side of the county line in the first place.
Paging John Willingham
The county chief executive says that he plans to present his plan to the county board of commissioners in the near future. Where’s John Willingham when he needs him?
After all, it was the maverick Republican lawmaker who called for a payroll tax during his four years on the Shelby County Board of Commissioners and during his three ill-fated campaigns for mayor, twice for city and once for county.
At one point, the former commissioner even got a shout-out from Memphis Mayor Willie W. Herenton, but he could never get the county administration and his Republican brethren, then in the majority on the board of commissioners, to give him a fair hearing.
Whether times have changed enough to give the latest call for the payroll tax any better prospects remains to be seen, but as we’ve said now for two and half years, taxing commuters who drive into Shelby County to work – but without paying their fair share of the services that they use and that support their jobs – is fundamental to overall tax reform.
Ballooning Taxes
Previous trial balloons about a payroll tax have been routinely shot down over the years by a variety of opponents, including Memphis Regional Chamber, corporate leaders, notably within FedEx, and anti-tax forces that treat any new tax the same way that the NRA responds to stiffer gun registration.
Angst in the community about the public sector is so widespread these days that it will take a monumental effort to line up the public behind this proposal, but Mayor Wharton has the best chance of doing it if it becomes part of a comprehensive tax reform proposal that reduces county property taxes, eliminates the wheel tax, reduces the local portion of the sales tax, pays down the county’s debt and improves the level of public services.
More money for The Med and for fighting crime are great, but these days, nothing short of a tax reduction will convince Memphians that government feels their pain.
The Justification
As Mayor Wharton rolls out his plan, there’s a few facts that we think deserve repeating:
• Shelby County continues to lose income to neighboring counties – a quarter of a billion dollars in a two-year period.
• The number of people working in Shelby County, but living across the county line, continues to swell – now about 88,000.
• There continues to be a bulge in 5-13 year-olds in this county, foreshadowing a continued need for more money for education and interventions.
• The poverty rate in Shelby County hangs at about 16 percent, creating a large sector of citizens unable to pay taxes.
• The wages paid to people who work in Shelby County continue to grow at a rate of about three per cent a year – now more than $20 billion.
• About 61 percent of DeSoto County workers get their paychecks in Shelby County; 60 percent of Fayette County workers; 52 percent to Tipton County workers; 34 percent of Marshall County workers; and 33 percent of Crittenden County workers.
• 26,000 workers drive into Shelby County every day from beyond the MSA to work here.
• Roughly one in five workers holding jobs in Shelby County doesn’t live here.
• Memphis is #13 in the ranking of cities with the largest percentage of commuters working within them (cities with a population of more than 500,000).
• The 6,000 Shelby Countians who work in DeSoto County aren’t exempted from paying that state’s income tax.
An Unfair Tax System
The relevance of these facts is compounded by a Memphis tax structure that is one of the most regressive in the U.S. Or put in normal English, the poorer you are in Memphis, the greater percentage of your income that you pay in taxes. That’s just the opposite of most places, where the tax burden grows as incomes rise. Here, a family earning $150,000 pays about 5.6 percent in taxes, while a family making $25,000 pays 7 percent.
Local taxes in particular contribute significantly to this regressive tax structure. According to the Tennessee Advisory Commission on Intergovernmental Relations (TACIR), a family of three earning $20,000-29,999 pays 5 percent in local taxes, but a family earning $50,000-69,999 pays only 2.8 percent in local taxes.
TACIR also concludes – and it’s no surprise to Memphians – that we pay the highest combined city and county property tax rate in Tennessee. And it’s not even a close call.
Highest Taxes In Tennessee
Shelby County’s effective property tax rate is 35 percent higher than Nashville, 67 percent higher than Chattanooga and 76 percent higher than Knoxville. Or said another way, Shelby County residents have the highest percentage of income being paid as property taxes of any Tennesseans.
Oliver Wendell Holmes said that taxes are the price we pay for civilization, but there’s absolutely nothing civil about the combined Memphis-Shelby County tax rate. As we’ve pointed out before, a disproportionate percentage of our public budgets are spent for education because of our demographic anomaly (the unusual, higher percentage of youth), and we also pay the price for entrenched poverty and its byproducts, but it’s awfully hard to understand how Nashville, Knoxville and Chattanooga can have a combined city-county tax rate that on average are 50 percent less than ours.
All of these reasons should give impetus to the push for a new discussion about the tax structure by Mayor Wharton, and why this “privilege tax” is an idea whose time has come.
We live in a tax adverse society, but it’s clear that there will always be taxes. The charge of elected officials is to pursue ways to make them more equitable, fairer, more coherent and more balanced. That’s the first conversation that we hope county officials will have as they pursue the subject of the privilege tax.