tax breaks – Memphis Flyer

Tennessee’s State Funding Board approved conservative growth rates Thursday as revenue flags in the wake of a major business tax reduction.

The board, which is made up of the state’s three constitutional officers and finance commissioner, set a growth rate in general fund revenue of 1 percent to 2 percent and total tax growth at 1.25 percent to 2.15 percent for fiscal 2025-26.

With this year’s overall budget at $52.8 billion, the board maintained the total growth rate projection for fiscal 2024-25 at negative-1.68 percent to negative-1.34 percent. The board was forced to roll back projections at mid-year because of weak revenue.

Economic experts told the board earlier this month that the economy is in good shape but that growth is slowing after double-digit revenue two years ago. The state also is facing a $1.9 billion business tax reduction over several years after lawmakers approved a request by Gov. Bill Lee to eliminate the property portion of the state’s franchise and excise taxes. That came on the heels of a business tax break the previous year.

Tennessee lawmakers still at odds over business tax cut as session enters final days

The Department of Revenue has processed nearly $900 million in rebates this year, and more are expected.

Tennessee’s growth rate usually lies between 3.5 percent to 5 percent, but staff expected revenue to slow down and built in a cushion over the past two years, Budget Director David Thurman said.

In recent budget hearings, state departments and agencies requested more than $4.2 billion in funding increases for fiscal 2025-26 to deal with inflation and improvements in state services. But the revenue forecast isn’t expected to come close to matching that figure, even with federal funds covering some of the costs.

The weak budget outlook could affect lawmakers’ decisions on providing funds to flood-ravage counties in East Tennessee and the governor’s proposed private-school voucher program, which was not approved this year but has $144 million in unused funds in the budget.

Tennessee Lookout is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Tennessee Lookout maintains editorial independence. Contact Editor Holly McCall for questions: info@tennesseelookout.com. Follow Tennessee Lookout on Facebook and X.

Our cover story this week looks at issues stoking the embers of class struggles in Tennessee.

School vouchers, flagging revenues, and even that brief “tax holiday” on groceries have some wondering for whom does the state’s Republican-dominated government work?

State revenues will flatten this year, according to experts, after years of increases. This is thanks, in large part, to big tax breaks the legislature approved for business owners last year.

This “business-friendly” policy framework, which cuts taxes for the business class in hopes of prosperity for everyone, found harsh critics in economists with the national Economic Policy Institute.

Elena Delavega is a professor at the University of Memphis, a Memphis poverty expert, and co-author of the annual Memphis Poverty Fact Sheet, along with Gregory M. Blumenthal. She said the low-tax system does not work for everyone and stymies investments in cities. Here’s what she told us in a recent interview. — Toby Sells

(This interview has been edited for clarity.)

Memphis Flyer: Does this “business-friendly” economic system work for everyone?

Elena Delavega: It may help two or three people at the very top, but it ends up hurting everybody else by denying the investment in the community that would make it a livable community, that would attract people who can have a choice [of a place to live].

So, it’s sort of like this downward spiral. We don’t invest and then become even less attractive. Then, we cut taxes. Then, there is less money for investment. We cut more taxes and so on.

So, that’s a no.

No, it doesn’t because in the end, these companies come, take advantage of the tax breaks for a little while, and then leave. We’ve observed this again, and again, and again.

In the end, if companies cannot attract people to work for them — if we cannot attract highly educated people and we’re not funding schools to the degree we need to educate people that can be hired by those companies — the low wages and cutting taxes [system] is actually a myth.

You can cut as much as you can, but unless you find ways to make more money, it really is a fallacy. So, what ends up happening is companies cannot attract people to move here. They also cannot hire people, and they leave. Or, people are not interested because there are no amenities and the only way to do that is to actually have higher taxes.

How does this all affect our poverty situation?

It’s the policies at the top that end up creating inequality and poverty, but they hurt everyone.

You shoot yourself in the foot because abandoned areas become not interesting to businesses. So we’re here begging, “Oh my god, let’s help businesses.” But businesses are choosing to go out to cities that provide good amenities, good schools, good roads, but also good theaters, good parks, good museums because these are the things that people find interesting and where those with money want to live.

You’re then able to attract businesses not by getting yourself naked and taking off your clothes in the middle of the road, but by actually having an attractive city. Then, the money is going to come. You’re not having to cut your tax base. The money is now sufficient.

You also need to have a middle class to support your businesses. You can put tons of money on the three people at the top, but the reality is … can they drink — what? — 365 cups of coffee in a year?

But if you have 200,000 adults that are able to buy a cup of coffee once a day or going to a restaurant once a week or twice a week … now you have the people who can actually support [businesses]. If you don’t have people able to support your businesses, your economy is going to go on a downward spiral.

When you put the money in the hands of the very few at the top, what you have is a feudal system. It has a bunch of servants at the bottom who cannot afford to have anything and three very wealthy people at the top, who cannot support all the other businesses.

If you put the money in the hands of those at the bottom … if you raised the minimum wage … that would be a fantastic way [to boost the economy] because now people at the bottom are able to all go buy shoes and all go buy coffee and all go to restaurants. So, the money starts circulating and what you have is an upward spiral that really lifts all boats.