IMPROVE Act better for state

3/10/2017

As the Tennessee Legislature debates how best to replenish funding for infrastructure, it would be instructive, if not enlightening, for lawmakers to study a recent University of Tennessee report on their options.

Gov. Bill Haslam has proposed a comprehensive tax restructuring bill that would raise fuel taxes but cut levies on businesses, food sales and investment income.

An alternative proposal simply would funnel existing revenues to start whittling away at a $10 billion backlog in road and other transportation projects.

Donald Bruce, a research professor at UT’s Boyd Center for Business and Economic Research, analyzed both approaches and published the results last month. Bruce did not endorse either proposal, but his analysis highlights key differences.

Both plans would address the infrastructure funding shortfall. Both essentially would be revenue- neutral. Both would boost the economy — Bruce cites an International Monetary Fund report that found increasing public investments by 1 percent of the gross domestic product would increase economic output by as much as 2 percent.

The governor’s proposal, however, would produce other benefits that make it a smarter choice for Tennessee.

Haslam’s plan, called the IMPROVE (for “Improving Manufacturing, Public Roads and Opportunities for a Vibrant Economy”) Act, would allow Tennessee manufacturers whose markets primarily are out of state to reduce business taxes even further than the direct cuts in the proposal.

The distribution of the tax burden in the IMPROVE Act is another selling point.

According to Bruce’s analysis, the various tax adjustments in the IMPROVE Act shift more of the tax burden onto higher-income households because of spending patterns. The Pew Charitable Trusts found that the upper third income group in the United States spends roughly twice as much on fuel as the lower third. The difference in spending on food at home is narrower — about one and a half times.

The IMPROVE Act also would shift more of the tax burden on out-of-state taxpayers, Bruce found. He cited research by the Tennessee Department of Revenue showing slightly more than half the state’s revenue from the diesel fuel tax comes from out-of-state truckers. Out-of-state tourists and travelers passing through Tennessee also would pay more.

Leaving the tax structure in its current state and shifting general revenues to transportation would mean that Tennesseans would pick up a larger portion of the tab.

Bruce also addresses “recession readiness,” which is the state’s ability to navigate through an economic crisis. The IMPROVE Act would give the state more flexibility to make adjustments when revenues slump.

Tennessee’s fuel taxes have remained at the same per-gallon cost for 28 years. Inflation, greater fuel efficiency and other factors have eroded its purchasing power. According to Bruce’s report, 19 states have raised gas taxes since 2012 and 21 states are considering it this year.

While both plans would increase infrastructure funding, the IMPROVE Act’s advantages in fairness and tax distribution make it the better option for Tennessee.

Source: Knoxville News Sentinel

The East Tennessee Economic Development Agency markets and recruits business for the 15 counties in the greater Knoxville-Oak Ridge region of East Tennessee. Visit www.eteda.org

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