Monday, January 23, 2006

Constitutional Legal Opinion Critical To Tax Reform Proposal

In yesterday’s post, we questioned whether the needed changes in the PILOT program will ever get a fair hearing. We hope the same can’t be said about the proposal for a payroll tax.

With about 88,000 people driving into Shelby County every day to work, exacerbating one of the most regressive tax structures in the nation, the only tax reform proposal on the table deserves serious consideration. The proposal, called the Shelby County Fairness Program, has been advanced by conservative Shelby County Commissioner John Willingham, who has taken up the cause championed previously by former Memphis City Council Janet Hooks.

He believes there is a loophole in state law that could potentially give Shelby County the ability to enact a tax on the income of people who work in Shelby County, including those who are nonresidents of our community. He’s asked for the help of the county administration, and in response, his question has been forwarded to the Shelby County Attorney’s Office for a legal opinion.

Unlike its city counterparts, the Board of Commissioners does not have its own attorney. Its legal affairs are handled by the county attorney and his assistants, all of whom are appointed by the county mayor. While complaints about the office are as rare as tax cuts, it would remove any cloud about a politicized legal opinion if a special outside attorney, preferably someone with expertise in constitutional law, was appointed to consider the legal issues surrounding the payroll tax proposal.

In government, symbolism sometimes has more power than reality. The county attorney’s office has strong loyalties to the administration, which only makes sense because every member of the county’s legal staff – one of the largest law firms in the city – is appointed to their jobs by the county mayor. Most are politically active and reliable campaign contributors, so rather than ask for a legal opinion by current staff that could be questioned by some for its objectivity, an outside special attorney could resolve this question.

Shelby County Mayor A C Wharton has always been skilled at understanding the potency of symbolic actions, and an outside attorney to consider this question would say volumes about the values of his administration.


Larry said...

Article 11, Section 9, of the state constitution says this:

The General Assembly shall not authorize any municipality to tax incomes, estates, or inheritances, or to impose any other tax not authorized by Sections 28 or 29 of Article 2 of this constitution.

mike said...

Ahhh.... Larry have you read Tennessee AG Paul Summer's opinion from 2002 that an income tax can be made to stick, via using the "privilege tax" provision of the Constitution?

As originally written it only applied to lawyers and doctors (the last of the "guild" professions), but over the subsequent decades State Assemblies have stretched and abused the "privilege" so that more than 100 categories of professions are now covered, even including nail salon technicians.

Summer's argument was that Tennessee could adopt the Federal Register definition of "work," used for the Federal income tax, as the definition of "occupation" under the privilege tax statutes, thereby covering all jobs and allowing Tennessee to thereby have an income tax.

The privilege tax is already legal, and the Assembly has repeatedly abused it enough to allow the stretch, he argued. It's pretty wild, but an interesting theory. He does use a lot of questionable arguments though. You can read it here.

(It's fascinating to note that although Bredesen pretty much cleaned house when he took office from Sundquist, he did keep Summers as AG. Wonder why....)

As I understand it, the framers of the TN constitution wanted to prevent a welter of tax districts and a bewildering array of taxes, so they kept taxing power -- the most important power of any government -- in Nashville. Today's Assembly isn't interested in solving local tax problems any more and so want to devolve it down to the Counties and municipalities to let them deal with it.

(There is also the darkly muttered theory that Nashville wants to see how to craft a Supreme Court-passable income tax provision, and so they are letting the communities try a variety of approaches to see what sticks.)

What Shelby County wants to do is to try taxing the payrolls of businesses, which isn't -- strictly speaking -- an income tax, though it functions as such. It will, however, raise the cost of doing business in Shelby County and thereby drive more businesses outside the county, perhaps along that nice new Interstate that SMC blogs about just below.

Shelby County used to reclaim this "lost" revenue via state-share revenues from Nashville. Bredesen put a stop to them in order to balance his first budget. Even though the State has run hundreds of millions in surpluses every year since, he has refused -- and the Assembly and the West Tennessee Legislative Caucus have refused to press -- to restart them. They meant roughly 25 to 30 million every year to Shelby County and Memphis.

All of this is smoke and mirrors. The purpose of reconstructing the tax base is to raise more money than is being raised now. Proponents want to argue that spreading the taxes around will lower them for you. However, Shelby County government has never done with less money, year to year; it always has more, but also manages to spend more every year.

I have yet to be convinced that the County Mayor and the County Commission are doing everything they can to get the cost of County government to rock bottom first. I am convinced it is a deeply corrupt and cronyist RICO operation. Fix the real problems first, before you open up new pipelines of money that tap my wallet.

Smart City Consulting said...


The question is whether Shelby County is a municipality. In another part of the constitution, municipalities are defined as cities. However, over the years, counties have been referred to as municipalities as a result of some court rulings. That's why the question is being asked.

Smart City Consulting said...


As you've said before, we often disagree, but we appreciate the always thoughtful responses and the contributions to the discussion of these issues.


Mick Wright said...

A packet put together by Willingham to promote his tax plan includes an opinion on the constitutionality topic by IRS Chief Counsel Daniel Cassano. The document is available at the bottom of this post at the Main Street Journal.

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