Tuesday, July 29, 2008

Memphians Pay Too Much In Taxes And The Wrong People Pay The Most

Here's the conclusion from a state think tank's report that will be no surprise to anyone here: Memphians' taxes are high and inequitable.

It's the unequivocable conclusion from the Tennessee Advisory Commission on Intergovernmental Relations' report, "Who Pays More: Local Tax Burdens on Tennessee Households by County." The report analyzed the tax burden of people in the 19 Tennessee counties with populations of more than 65,000 people.

"The highest effective property tax is found in Shelby County, reflecting the impact of an extremely high property tax rate in Memphis," the report's executive summary said. "Memphis has the highest combined county and city nominal tax rate in the state…Total local taxes are regressive, since each of the three taxes (property tax, sales tax and wheel tax) is separately regressive. Regressivity refers to lower income persons paying a higher percent of their income for taxes than do higher income persons."

And that in a nutshell is the huge obstacle facing Memphis. The high cumulative tax rate drives people, especially the middle class, out of Memphis (and often out of Shelby County altogether) leaving the regressive tax burden to fall even more heavily on low income Memphians.

The Burden

The cumulative city-county tax rate for Memphians is $7.4732 per $100 of assessment; in Knoxville, it's $5.50; in Chattanooga, it's $5.356; and in Nashville/Davidson County, it's only $4.69.

TACIR reported that the effective property tax rates were lowest in Sevier County at .35% benefiting from its strong tourism industry) to the highest in Shelby County at 1.29%. No other county had an effective tax rate of more than .95% and that was Nashville/Davidson County.

A telling fact in the report is that the tax burden for a family of three in Tennessee's wealthiest county – Williamson County – pays only $230 more a year. What makes that remarkable is that median value of housing there is $267,700 compared to $118,200 in Shelby County and median household income there is $94,372 annually compared to $54,924 in Shelby County.

Tale Of The Tape

Here's the tale of the tape on the regressive tax structure of Shelby County:

  • Families making $20-29,000 pay 5% of their income in taxes;
  • Families making $30,000-39,999 pay 4.7%; families making $40,000-49,999 pay 3.2%;
  • And remarkably, families making $50,000-69,999 pay 2.8 percent (or 2.2 percent less than families who earn less than a third of their incomes).

Addicted To Regressive Taxes

If there's any consolation, and this is cold comfort indeed, Shelby County is #3 of Tennessee's most regressive counties among 95 – behind Williamson County and Nashville/Davidson County.

In its report, TACIR looked at property tax rates, local option sales tax rates and wheel taxes.

The average adjusted property tax rate in Tennessee was $2.337. Shelby County's is $4.09, the highest in Tennessee.

The average local option sales tax rate in Tennessee is $2.42. Shelby County's is 2.25%, while about 35 counties have maxed out at 2.75%.

The average wheel tax among the 55 counties who have them was $35.16, with the highest in Crockett County. Shelby County's wheel tax is $50 for private cars and $20 for motorcycles.


"In terms of tax burdens, no Tennessee counties are progressive," the TACIR report concluded. "Williamson County's local tax burden is the most regressive in Tennessee. Gibson and Hancock Counties have the least regressive tax burdens."

While local efforts to expand tax sources are well-intended, in the end, the current tax structure is so badly flawed that even new sources are just stopgap solutions that don't address the fundamental flaws in the system.

TACIR spotlighted this reality with its reliance on the District of Columbia report – "Tax Rates and Tax Burdens in the District of Columbia – A Nationwide Comparison" – that looked at the District and the largest cities in each of the 50 state. The report, which we have frequently cited here, said that families earning $25,000 were ranked 31st in their tax burden among the 51 cities while families earning $100,000 and $150,000 were ranked 46th.

We Can't See Up From Here

By the way, the average tax burden for the 51 cities paints a graphic portrait of Memphis' tax structure's inequities (remember TACIR focused on the entire county) – Memphians who earn $25,000 pay 10.8% of their income in taxes; 6.0% at $50,000; 5.8% at $75,000; 4.9% at $100,000 and 4.3% at $150,000. In other words, the equity of the system is upside-down.

For perspective, consider that the 4.3% in Memphis for families earning $150,000 compares with the following rates: Philadelphia, 11.1%; Providence, 11.4%; Baltimore, 10.1%; Atlanta, 10.2%; Columbus, 10.2%; Louisville, 10.0%; and Little Rock, 9.2 . "The three cities with the least progressive state and local tax systems are Las Vegas, Nevada; Sioux Falls, South Dakota; and Memphis, Tennessee," concluded the 56-page District of Columbia report.

In analyzing the tax burden of District of Columbia residents, a previous report concluded that the problem there happens because the city "does not have the authority to tax nonresident income earned within its borders. Nonresidents earn about 2/3 of all income in the District of Columbia." While the district's dilemma is obviously more dramatic than ours, the same principle applies here, where about 20 percent of the $2.2 billion earned here is by nonresidents, who pay no part of their income to support the infrastructure that creates the jobs they hold.


Tom Guleff said...


I love your blog.

Taxes are a contributing factor for flight, but not the primary reason. I would add a broader profile of concerns that include:

Crime, poor schools, corruption, taxes, and civic perception.

When there are no affordable remedies, then people move.

I am a little more simplistic.

b said...

Excellent post. That's why we need consolidation locally, and statewide a state income tax. Then cut the sales tax rate and ban all those ridiculous add-on taxes.

Will Hicks said...

Great post. Before we start adding a state income tax, we need to eliminate the corruption in our local and state government.

Eliminate the corruption and we'll save millions, I'm sure.

Anonymous said...

Property taxes are not really the regressive tax you make them out to be. It is simply that taxable property for lower-income individuals makes up a higher percentage of net worth.

Consider home costs. A lower income individual will usually have a higher percentage of income attributable to housing than a weathly individual. It is only logical that property taxes would resemble this truth.

Regressive and progressive terminology doesn't really make sense unless property is taxed at different rates, which is not the case.

In regards to the tax structure being inequitable between county and city, this is very true.

Anonymous said...

The more a property is worth the bigger the tax break. A $100,000.00 house is taxed on $25,000 but a $1,000,000.00 is tax at $250,000.00 a $750,000.00 break. Tax all on the full value but give a fixed amount exemption for the primary home. Then the rich pay on more and the poor pay on less.

Smart City Consulting said...


We enjoy your blogging as well.

Crime is the #1 reason people are leaving Memphis. Taxes/corruption interwoven at #2. Actually schools is down the list of the top 10 reasons, remembering that only about 25% of families in Memphis have kids in school.


Anonymous said...

Higher property taxes in Memphis and Shelby Co are a direct result of the people running the local governments. When felons, incompetents and unqualified people are making the decisions, you can expect gross inefficiency and higher taxes. How many of the other major metro areas in TN have dual city and county governments? Answer is, NONE! There's a reason for that - it costs more to run two governments in a big metro area like Memphis or Nashville. Until the governments are consolidated, expect high property taxes and get used to it.

As for the regressiveness of all taxes, it's either that or socialism...take your pick and take the good with the bad.

Smart City Consulting said...

anonymous 4:15:

Here's the thing. Our higher property tax rates are a result of the bulge in children in Memphis and Shelby County. It is an anomaly among the top 50 largest metros and it accounts for about $200 million more a year in expenditures by government for education alone.

Back out this demographic anomaly and our tax rate is roughly the same as Nashville's.

Michael Roy Hollihan said...

I have a couple of proposals. Let me know if you agree.

Since we'll be accumulating data on people's income for tax reasons, why not use it for more "progressive" normalisation of government revenues.

Why don't courts adjust their fines and "court costs" based on income. Obviously, a poor person who gets a speeding ticket pays a larger share of income than a rich person. Why not create a sliding scale. If you're poor, your first ticket is $25; if you're rich, your fine is $1000. Seems fair to me.

You've talked before about the need for the local income tax for non-residents and how they use local services but don't pay for it. Well, what about all the folks who pass through town from other parts of the country -- not just the immediate Mid-South. They don't work here, so we can't capture their contribution like an income tax would.

How about a non-resident sales tax? If you don't live in Shelby County, you have a small amount (say 1% or at least a penny) added to your purchase at local stores? We already have consumers and merchants used to presenting ID when they purchase things like beer, cigarettes, cough syrup, etc. Why not simply have people present ID with every purchase. That way, we get something from everyone?

And to b, who said, "Then cut the sales tax rate and ban all those ridiculous add-on taxes." AHAHAHAHAHA!! Get rid of old taxes? Like the "temporary" wheel tax, which is not only still with us, but has been doubled and changed from a "schools only" tax into a "general fund" tax? Or the phone tax you still pay that was started to fund the Spanish-American War?

Ahhh.... Such naivete.

Smart City Consulting said...

Anonymous 4:15:

Just for the record, of the other metros in Tennessee, all of them have exactly the same structure of government that we have - except Nashville. It's the sole consolidated government.

Anonymous said...

Smart City consulting:

That's not correct. There was an article in the Commercial Appeal very recently about this very topic.

Memphis is the only metro area in TN without consolidated city and county gov'ts. Knoxville gov't and its county gov't are consolidated as are Chattanooga and its county gov't.

Why is Memphis the only major metro area in TN without consolidated governments?

Anonymous said...

Anon 11:56: you are incorrect. Knoxville and Knox County are separate political entities. Hamilton County and Chattanooga are separate as well. What they DO have is one consolidated school system. Only Nashville/davidson County are fully consolidated, both schools and government.

b said...

hey mike,
if the bush administration can roll back taxes, why can't we?

Anonymous said...

Hey b, neither the Bush administration nor Congres has to balance a budget. The city, county, and state do.

Smart City Consulting said...

Anonymous 11:56:

It does sound like you have the consolidated school systems confused with consolidated governments. Again, no other metro in Tennessee has consolidated government and in fact, the vast majority of all metros in the entire U.S. have exactly the same structure of government as we do.

We wrote about consolidation for a week earlier this year. If you'd like to read more, please search our blog for consolidation and look for a week's worth of posts.

Anonymous said...

There are dual mayors in Chattanooga and Knoxville and their respective counties? Why haven't they consolidated their governments?

I think Little Rock and Pulaski county are consolidated. Everyone thinks Arkansas is backwards when compared to any metro area here in TN and actually it's the opposite.

Smart City Consulting said...

Anonymous 6:57:

Actually, Little Rock has a mayor and Pulaski County has a county judge.

Zippy the giver said...

They do not serve the same purpose. The judge is a judge, not a mayor.

Midtowner said...

We just need to get more of the lower income homeowners to move out in order to balance the numbers! lol

Seriously tho, I don't know how the numbers are gathered. For instance, the lower valued homes may be owned by high income people who are renting them out. I have an above avg income but have a smaller home.