Taxing Issues: Corporate Welfare

TAXING ISSUES: A SIX PART LOOK AT ISSUES THAT HINDER TENNESSEE’S ABILITY TO BE A JUST A PROGRESSIVE STATE.

Part II: Corporate Welfare

You’ve heard the stories. The country is hemorrhaging money because of welfare, specifically welfare that goes to some lazy, drug-addicted woman of color who has more children than she has teeth. Sometimes in the stories this fertile woman enjoys state funded amenities such as I-phones and Cadillacs.  She’s so undeserving, so lazy and so deliriously happy with her free riches! I’ve heard about her for years; she is the ultimate welfare strawman (strawwoman) and doesn’t really exist. The story is a cheap parlor trick designed to force attention away from the real culprits and to place blame elsewhere. It is an insidious trick that fosters bigotry, misogyny, distrust of the government, distrust of the poor while promoting the false assumption that if you have nothing you are lazy and stupid and if you have something then you are smart and hard working. Personally, I’ve known a lot of folks on public assistance. Most of them were in college trying to earn a degree to become a working, tax-paying citizen. No one was wealthy by any stretch of the imagination and none of them had more than one kid. The kids, by the way, were valued members of their families and not part of some scheme to score more groceries. I digress.

I could go on and on, but the title of this post is called Corporate Welfare so I’d better get to it. The thing that blows my mind is the reality of welfare. See, in the U.S. a full 2/3rds of the welfare budget goes to corporations. It goes to subsidize oil companies despite the fact that they are making record breaking profits each and every year, or welfare is being dispersed to giant agri-farms who are forcing mom and pop farms to close, employing factory style farming that inhumanly treats animals and don’t need the money. More digression. My point is that if your beef is with a wasteful welfare system, then at least start with the big potatoes. Personally, I’d rather give free breakfast to a needy kid than wallpaper a CEO’s private office bathroom. That’s just me though.

Yes, that's a solid gold toilet. 

Anywho, in Tennessee we have a very similar situation. There is lots of corporate welfare being handed out hand-over-fist all under the guise of attracting businesses to Tennessee. Ha! It’s laughable, really.

The thing that our political leaders try to tell us is that the only way to get businesses to come to Tennessee is to offer them incentives (which we’ll get to in a minute), but that’s not really the case at all. I mean, look at why people move to one area or another. They move for a host of reasons: the climate, to be close to family, good school systems, affordability, jobs, sufficient entertainment and infrastructure.  Corporations are the same. Lots of politicians will tell you that companies move to Tennessee because we don’t have an income tax. That is complete bunk. If that were the case then Tennessee would host more headquarters than California and New York combined. We don’t. Next. Companies are actually less likely to move their headquarters to Tennessee because we have very low rankings in terms of education, healthcare and social services. We have great interstates though, so that helps.

So, what do political leaders do then? If not having an income tax isn’t that big of a deal to corporations how do they get them to come live in Tennessee? CORPORATE WELFARE! This means Tennessee tax dollars (generated by the highest sales taxes in the country) help line the pockets of companies all across Tennessee.

One of these welfare items is giving companies free use of land for a time. This is called a PILOT or Payments in Lieu of Taxes. Basically it is free property taxes. Property taxes, by the way, are one of the main ways that schools are funded in Tennessee.  So, for instance, take a look at the Tennessee Comptroller’s IDB/H&ED Report for 2011 (the most recent). This is a list of the companies that have received a PILOT in 2011, how much the property is valued, how much they have actually paid, and how long they have this PILOT for.

So here are a few examples of PILOTS in action:

1. Centennial Village Apartments in Oak Ridge Tennessee, received a PILOT until 2029 or for the next 17 years. The property is valued at $11,110,194 dollars, the owners pay $1 a year in rent for the property and have graciously been paying $55,623 a year in payments in lieu of property taxes. However if there were no PILOT these landlords would have to pay about $605,505 in taxes a year. That’s $556,253 a year for the next 17 years that citizens of Tennessee and Oak Ridge will never see. Not to mention what will be going on in 17 years. Will these landlords simply sell the building and over to another state? Will the buildings fall into disrepair and have to be demolished? How many people will this apartment building employ? When do the citizens of Oak Ridge get to reap the benefits of this investment?

Centianial Apartments Clubhouse complete with "vacation style salt water pool."

1. Parr Industries in Pulaski, TN ; one of 6 locations in Tennessee with PILOTS. One property is worth $907,000 they pay nothing, nada, zip til 2030. Will they be around in 2030? How many people do they employ? They are less 30 miles from Alabama, so how many Alabama residents do they employ? Pulaski is missing out on $33,468 a year for 18 years. Will they break even on this deal?


2. Wrigley Manufacturing Group in Chattanooga, TN with an estimated property value of $13,352,267 pays nothing until 2018. This is a savings to Wrigley of $715,147 a year. How many people from Georgia (which is minutes away) are employed there? Is this company new to the area or did they get an extension or a new PILOT to stay?


3. Oreck Manufacturing Group in Cookeville, TN has an estimated property value of $19,643,519 and they pay $100 a year in rent and nothing else until 2032. That’s a savings of  $ 711,095 a year. Wow! What a deal! I want that deal too! How many people do they employ? Does the city of Cookeville essentially pay for the salaries of all of the employees this way? Will the company relocate to another state in 2031?

I only ask because it seems no one else has. Try and find these answers through any Tennessee agency. I have and no one is responsible for following up. Maybe these things work to the benefit of Tennessee sometimes, maybe they don’t. Who knows? I’d at least like to see some sort of cost benefit analysis in addition to some claw back legislation. TACIR, the Tennessee Advisory Commission on Intergovernmental Relations published a study on the negative impacts of PILOTS on schools and the lack of governmental oversight in the give-away process. It’s a good read. Albeit frustrating that this thing was written 8 years ago and not much has changed.

I’d like to tell you how much money the state would save or make if PILOTS were stopped or mitigated, but the data is hard to calculate. As you can see by the four examples above that calculating this stuff is difficult and time consuming… and there are so many of them too.

In addition to PILOTs, there are a whole host of other corporate freebies too, like REITs (Real Estate Investment Trust) which sole purpose is, according to Wikipedia, to reduce or eliminate corporate tax. What about Amazon’s 2 year deal to not collect sales taxes in Tennessee, giving them 10% discount advantage over everybody else in the state? Yep, that too was a corporate give away and the state lost out on around $200 million in revenue.

There’s no doubt that Tennessee needs to grow and be competitive, but are all of these corporate giveaways helping or hindering? What we do know is that Tennessee needs corporate welfare oversight and accountability, or in other words, CORPORATE WELFARE REFORM. Perhaps then we wouldn’t have to literally give away the farm just to get 14 blue collar jobs in this state if the citizen’s tax dollars were better spent on education, environment, safety and other vital infrastructure.  If Tennessee spent it’s citizen’s tax dollars on building a better Tennessee for all of us, then maybe the businesses wouldn’t require us to pay them for the privilege of locating in one of the most beautiful and friendly states in the nation.  Then businesses would come because we would offer, for example, some of the best schools and not just the best interstates.  You might say it’s a just a dream, but I say it’s a reality that we’ve not yet realized.

Stand with TFT and let’s get our tax dollars working for the people not the corporations!

Taxing Issues: Combined Reporting

Taxing Issues: A Six part look at issues that hinder Tennessee’s ability to be a just a progressive state.
 

Part I: Combined Reporting

Combined reporting? What’s that? We’ll don’t worry, it’s not quite as boring or complicated as it sounds. It’s actually a loophole that large, multi-state corporations take advantage of to avoid paying all of their taxes.

See, in Tennessee, corporations are not required to show all of their earnings to the state (the loophole). So companies with clever accountants set up subsidiaries (which is basically a P.O. box) in Delaware (A.K.A. Delaware Holding Companies) and these corporations pay themselves rent on property the Delaware subsidiary own in Tennessee, or they pay themselves for the use of the store logo. You get the picture. So come tax-payin' time in Tennessee the corporations only have to show the state of Tennessee what they made in Tennessee and the state has no idea about Delaware. This means that while the corporation could be making huge bucks off of Tennessee, they don’t end up paying all the taxes they owe because they’ve reported all these extra expenses (incurred by paying themselves through the Delaware holding company).

It’s just a fancy shell game that only huge, multi-state corporations can play. A mom and pop shop who only has a couple of stores in Tennessee can’t play this game because they are not multi-state and therefore can’t shift money form one state to another. It’s a tax avoidance scheme that puts all other honest, by –the –rules businesses at a disadvantage. In addition it costs the state about $200 to $300 million dollars a year. How many teachers could TN employee with that kind of dough? How many fire departments could be upgraded? See what we mean?

The good news is that we already know the answer to this problem and it’s really simple. It’s called: COMBINED REPORTING! What that does it make the corporation give a complete picture of their tax accounting for all states which prevents the corporation from hiding a share of their profits (made in Tennessee) in Delaware.  It’s that simple.

So why isn’t this being done already? Well, that’s a great question. A lot of lawmakers don’t see any need to rock the boat with these companies. We can only imagine why. But, the real reason is that the people of Tennessee haven’t given them any reason to close this loophole.  This is where you come in. We need to let our lawmakers know and to put pressure on them that we know about this loophole, we think it’s unfair and we want it closed! How many more windows at the DMV could be open with that money? That’s real hours of your life wasted because the state of Tennessee doesn’t have enough money to hire more staff?  

Let’s force this change and make Tennessee that much better.

Yikes! 11 charts that explain Everything that's wrong with America

As seen in Mother Jones: It's the Inequality, Stupid. 

Click to see all 11 charts. 

‘New Normal’ Not Good Enough - We Need Revenue with Justice!

Gov. Haslam said Monday in his State of the State address that Tennesseans face a $1.4 billion revenue shortfall, noting that this “reality will frame this budget” and that this is the “new normal.”

The revenue shortfall is not an inevitability reality – it is a choice. Tennessee’s elected officials have revenue options that could give two-thirds of Tennesseans a tax cut, support local businesses and the state’s economic growth, AND raise more than $1.4 billion in new revenue. They choose to ignore those options – that is the reality.

The status quo for Tennessee – revenue generated overwhelmingly by one source, the highest sales tax in the nation – has left us underfunded and kept us ranked behind the rest of the nation and our neighboring states in key quality of life issues. By declaring this to be the “new normal,” Gov. Haslam is telling Tennessee he is willing to settle for last, or maybe next to last, place.

“Gov. Haslam proposes cutting up to 2.5% from every state department, saying the government has to spend less,” said John Stewart, former TFT board chair. “At the same time, a portion of public money is being directed away from needs of Tennessee taxpayers and redirected toward large corporations.”

The proposed budget includes a $92 million gift to Electrolux, a company that recently closed a distribution center in Chattanooga to move it to Georgia. Electrolux has proposed a new center in Memphis, claiming that the almost $100 million gift in state funds was promised by the Bredesen administration. The leading Internet retailer, Amazon, has also promised to build two distribution centers in Tennessee, but only if it receives a special exemption from having to collect the Tennessee state sales tax. The Dept. of Revenue is considering a rule-change to cave in to this demand, throwing away at least $35 million in annual revenue for Tennessee, and handing Amazon a significant competitive price advantage over all other Tennessee retailers.

It’s one thing to be “business friendly”; it’s quite another to be promiscuous with taxpayer dollars! Gov. Haslam’s proposed budget takes money from Tennessee’s colleges, TennCare, and pre-K and gives it to corporations that aren’t even based in Tennessee and refuse to follow Tennessee’s laws,” said Phil Schoggen, Nashville TFT member “This is outrageous – Tennessee needs jobs, but giving millions of dollars to mega-corporations who don’t need the subsidies is not the way to do it.”

Gov. Haslam’s address emphasized the importance of job creation and education. Local businesses create up to 80% of our private-sector jobs, but they are hurt by the state’s high sales tax, competition from online retailers, and economic development deals that funnel money to large, out-of-state corporations. The high sales tax sends Tennessee shoppers and Tennessee jobs across the borders into neighboring states with lower sales tax rates.

Higher education is only attainable when it is affordable – college tuition has increased 74% in the last 10 years because of state budget cuts. Furthermore, the HOPE Scholarships, funded by a regressive and "voluntary" tax, goes disproportionately to the well-off who wind up paying little in tuition. "In the meantime, other students must take on personal debt to obtain a college degree. that debt isn’t going to help the state economy in the future,” said Anne Mayhew, a retired professor from Knoxville . “The state needs to increase funding to our pre-K programs, colleges and universities if we’re truly going to have a competitive workforce and economic growth in the future.”

In balancing the state budget, our elected leaders have two options: budget cuts or revenue generation. Lately, they have ignored this second option.

“Gov. Haslam claimed in his address that ‘the people of Tennessee want us to fix the budget shortfall and not raise their taxes,’” said Jennifer Tlumak, TFT board member “That could be accomplished by asking corporations to pay their fair share and by asking higher income residents to pay at a level comparable to what lower income Tennesseans are paying in taxes, thereby avoiding program cuts that hurt all our communities. We need revenue and we need justice.”

Tennesseans for Fair Taxation is a statewide non-profit organization that works at the intersection of revenue and justice to create a tax system that invests in Tennessee, its people, and its communities.

TFT’s proposals would raise at least $1.4 billion with the following measures:

1. Close corporate tax loopholes that allow multi-state corporations to shelter income earned in, and owed to, Tennessee ($110 million).
2. Require online and out-of-state retailers to follow the law our local businesses must follow and collect sales tax on items sold in Tennessee ($100-$365 million).
3. Eliminate the single-article sales tax cap on big-ticket items, so those making expensive purchases pay the same tax rate paid by those making inexpensive purchases ($85 million).
4. Eliminate the tax on groceries, reduce the general sales tax and implement a broad based personal income tax with generous exemptions (2/3 of Tennesseans would get a TAX CUT and pay no income tax and an additional $1 billion in revenue would be raised).

Tax Breaks to Corporations Don't Guarantee Jobs!

Tennessee and its local governments are bending over backwards to give tax breaks to corporations in backroom recruitment deals.
Memphis Mayor AC Wharton said critics of such deals should "shut up" when he was criticized by the Shelby County Commission for a request that the county spend $1million on public infrastructure to support Japanese-owned Mitsubishi Electric's plan to build a $207 million factory in the city to produce electrical transformers.
"We're becoming a very easy target. ... We're going beyond (tax breaks) to where we're making direct capital investments in these companies, and I'm not sure we should be doing that," Commissioner Harvey said.
An AP article from 2/11/2011 points out that the commissioner is right to be concerned: "It's recently become an article of faith for many governors as they try to attract jobs: raising taxes during a recession is a nonstarter, choking off growth and damaging a state's fragile economic recovery.... But there's a catch to the anti-tax, pro-business rhetoric: Businesses consider a range of factors when deciding where to locate, including the quality of schools, roads and programs that rely on a certain level of public spending and regulation. And evidence suggests there is little correlation between a state's tax rate and its overall economic health.
"Concerns about taxes are overstated," said Matt Murray, a professor of economics at the University of Tennessee who studies state finance. "Labor costs, K-12 education and infrastructure availability are all part of a good business climate. And you can't have those without some degree of taxation."
To read the full article, go here.