Why the sales tax doesn't work anymore
Because the sales tax is so easy to avoid, each
one percent increase of the sales tax rate costs Tennessee over $800 million in
retail sales and 5,000 jobs according to Dr. Bill Fox of the UT Center
for Business and Economic Research. As Tennessee continues to rely heavily
on the sales tax, vital state services like education remain victims of the
eroding state revenues.
Internet sales is creating the fastest growing hole in the sales
tax base. State and local revenue loss due to Internet sales was $192
million in 2001 and is expected to reach $808 million by 2011. More
Catalogue shopping is a long-established and continually
growing hole in the sales tax base. State revenue lost to mail order
sales was $77 million in 1996 and has continued to grow since then.
In our increasingly mobile society, people driving to neighboring states to avoid Tennessee’s high sales tax represents a growing loss of revenue to the state and jobs for our citizens.
The sales tax is a tax on tangible goods, not services.
As we become a more service-oriented economy, the sales tax becomes less
and less effective as a revenue source.
breaks for the rich:
The sales tax applies to basic necessities like food, clothing,
home furnishings, and transportation. It does not apply to things like
investments, attorney fees, house clearing services, and college tuition.
As a result, high-income families pay only a fraction of the taxes that others
do. More on this.
Tennessee's heavy reliance on the outdated and eroding sales tax has severe
consequences on state services.
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