The upside to Tennessee's lack of an income tax is that politicians get to crow about how we're a small government, low tax state, etc., etc. The downside is that it's just a shell game, merely shifting those burdens over to "user fees," as Ronald Reagan liked to call them, or our absurdly high sales tax rates. And now comes word that the state may be losing hundreds of millions of dollars because of it all.
When your sales tax can reach the lofty heights of 9.75 percent, it has a way of encouraging people to buy out of state -- especially when it comes to big ticket items. So long ago, Tennessee passed a law mandating that residents buying stuff elsewhere still had to pay the difference in sales tax back home. It sounds like a swell idea in theory, save for two naturally occurring phenomena: People will always avoid taxes if they can, and the government would have to do a whole lotta spying to enforce the rule. Which means that no one's actually paying.
And according to the Associated Press, that's costing the state a rather handsome pile of jack. Joe Huddleston, executive director of the Multistate Tax Commission, said unpaid use taxes total "tens of millions, if not hundreds of millions of dollars in lost tax revenue for Tennessee."
The losses will only get bigger as the depression becomes more severe. But the natural solution--creating an income tax to lessen the sales tax--would require political courage, which was last heard from in a text book in 1972.