The Chattanooga Times-Free Press published an item yesterday on a recent study (PDF) conducted by Federal Reserve Bank of Boston senior economist Daniel Cooper and Federal Reserve Board of Governors chief of fiscal analysis Byron Lutz and associate director Michael Palumbo. (Hat tip: Tom Humphrey.) Here’s what the analysts set out to do:

This paper quantifies the role of taxes in mitigating income inequality. Our work complements past research on this question by focusing on the extent to which taxes—both federal and state—ameliorate income inequality, and by considering all major elements of state tax systems, including sales tax exemptions, motor fuel taxes, and state earned income tax credit (EITC) programs.

In other words, they’re measuring the effectiveness with which the state redistributes wealth. Here are relevant assumptions they make:

The statutory incidence of a tax – i.e. the legal responsibility for paying the tax – may differ from the economic incidence of the tax. We generally follow the previous literature in our incidence assumptions: As in Musgrave (1951), Gramlich, Kasten, and Sammartino (1993), and numerous others, we assign the incidence of payroll taxes to workers, the incidence of the personal income tax to the individual receiving the income, and incidence of general sales and excise taxes to those who consume the taxed commodities. These assumptions render large scale empirical incidence estimates feasible. Furthermore, they are generally quite consistent with recent empirical research…. The assumption that the general sales tax falls on consumers is supported by results in (Poterba, 1996), although there is also evidence of over-shifting (Besley and Rosen, 1999). Overshifting occurs when prices rise by more than the amount of the tax—a phenomenon consistent with models of tax incidence under imperfect competition. We test the robustness of our conclusions to overshifting of the sales tax. Turning to the gasoline tax, recent evidence strongly suggests that the tax is fully born by consumers at the state level (see Marion and Muehlegger, 2011; Alm, Sennoga, and Skidmore, 2009).

Tennessee, of course, has no payroll taxes; the state sales tax (with a little help from other taxes and fees) primarily funds the state’s treasury. Here’s what the authors conclude:

Overall, we find that the combined federal and state tax codes substantially mitigate income inequality. However, state tax systems, on average, tend to increase income inequality slightly. This average effect, though, obscures economically meaningful differences across the states. In a few states, such as Minnesota, Oregon, and Wisconsin, state taxes compress the income distribution about one-sixth as much as federal taxes do. In contrast, the tax systems in a handful of states, including Mississippi, Tennessee, and West Virginia, widen the income distribution sufficiently to reverse around one-third of the compression achieved by the federal tax code. In terms of specific tax instruments, we find that the state-levied gasoline tax tends to widen the after tax income distribution by a moderate amount. In a number of states, though, it has a larger effect and reverses about 1 one-tenth of the compression achieved by the federal tax code.

Tennessee’s sales tax, they argue, somewhat offsets gains in wealth redistribution made by the federal tax code. The implication is that this is a bad thing, and the Times-Free Press is there to make sure we all know it:

A new study by a trio of economists from the Federal Reserve Bank found that Tennessee has the most regressive tax system of any state, requiring poor and middle-class taxpayers, in most instances, to pay a bigger share of their income than do wealthy individuals in the Volunteer State.

While the federal tax code helps to reduce America’s growing income inequality, Tennessee’s regressive tax system undoes much of the inequality-reducing force of federal taxes, the Fed study found. Tennessee boasts some of the lowest overall tax rates of any state, but its heavy reliance upon the sales tax for the biggest share of state revenues means that a disproportionate share of the taxes paid comes from low- and middle-income taxpayers.

Quelle horreur!

The rest of the Times-Free Press item focuses on Tennessee’s lack of an income tax, and the defeat suffered by pro-tax advocates in last year’s ballot referendum to amend the state constitution to prevent the enactment of an income tax at any future point (absent another constitutional amendment).

Not only does Tennessee’s tax system not undo “much of the inequality-reducing force of federal taxes” as the TFP‘s Dave Flessner reports (rather, it reverses “around one-third of the compression [in the income distribution] caused by federal taxes” according to the study; in other words policymakers are still achieving wealth distribution goals on net, they’re just not achieving them as aggressively), but the study doesn’t say anything about “requiring poor and middle-class taxpayers . . . to pay a bigger share of their income than do wealthy individuals in the Volunteer State,” in either most or few instances. That’s just rhetorical flourish from a factoid Flessner included in his piece, but for which he failed to provide a source or other citation:

Low-income people often pay 10 percent or more of their income in sales and property taxes (often paid through rent), while upper- income people in Tennessee may pay only 2 to 3 percent of their income in state taxes because much of what they spend their money on or earn income from is not taxed.

“[Tennesseans for Fair Taxation chairman] Dick Williams cited these figures,” Flessner told me in an email this morning. “I should have attributed that info.”

Indeed he should have. One can find support for these claims if you look around — for example, studies conducted by the left-wing foundation-funded 501(c)(3) Institute on Taxation and Economic Policy (on whose board sits former Clinton Labor Secretary and eponymous ideologue/demagogue Robert Reich), whose “sister organization” Citizens for Tax Justice is a 501(c)(4) “dark money” group that doesn’t disclose its donors (and on whose board sits noted reasonable, unbiased, dispassionate economic analysts like AFL-CIO president Richard Trumka and former UAW president Bob King, according to its 2013 Form 990 tax return). ITEP and CTJ have used Tennesseans for Fair Taxation as a proxy for reform activities in the past (ex. “TN Companies Listed in ‘Corporate Tax Dodging’ Report,” Humphrey on the Hill, 12/07/11). I wouldn’t at all be surprised to find out that ITEP and/or CTJ were funneling operating funds to TFT, but we’ll never know because — you guessed it — TFT doesn’t disclose its donors.

Separately, according to philanthropy database GuideStar, Dick Williams is affiliated with Common Cause Tennessee; it’s not a coincidence that Robert Reich is also on the board of Common Cause. Readers of this blog will appreciate that Common Cause, without a hint of irony, bemoans the impact of Citizens United v. FEC on our American politics and opacity of “money in politics,” but is organized as a 501(c)(4) “dark money” group that does not identify its donors by name in its 2014 Form 990 tax return (PDF), while accepting contributions up to $350,000 from individuals. It also has a 501(c)(3) arm, the Common Cause Education Fund, and this organization accepted contributions from individuals in 2014 up to $719,299, also without disclosing donor names in its 2014 Form 990 tax return (PDF).

Tennesseans for Fair Taxation claims to have enjoyed 501(c)(3) non-profit status since the mid-1990s, but on its 2013 Form 990 tax return says it engages in “coalition-building activities included [sic] contacts with labor organizations…maintaining relationships with other groups and laying the groundwork for a campaign against a proposed constitutional amendment” and that they’re involved in “organizing including mobilizing our members for letters to the editor or legislators, connecting persons with similar interests and skills and setting up working groups.” Those are awfully political activities for a 501(c)(3) non-profit, and I’m pretty sure those kinds of activities are why Lois Lerner and her cronies at the IRS held up applications for nonprofit status by tea party groups.

We should be willing to give Flessner the benefit of the doubt for not knowing that there are well-entrenched out-of-state monied interests behind the claims Williams made to him, but it’s shamefully lazy at best, and willfully distortive at worst, to report Williams’s claims as fact without attributing them to their source. Flessner should definitely correct his reporting, especially if the Times-Free Press wants to maintain its credibility as a participant in the Tennessee News Network, a project of the state’s four major dailies focused on covering the influence of out-of-state money in Volunteer State politics. Big Labor groups in Washington, DC using proxy groups in Tennessee to push messages to voters over state policy should definitely qualify as an item of interest for that project.

At least Flessner also reached out to my friend Justin Owen at the Beacon Center of Tennessee for comment:

Justin Owen, president of the conservative think tank, the Beacon Center of Tennessee, said not having an income tax in Tennessee “creates more jobs and further encourages the surge of migration into our state from those who are seeking to escape states that have heavy-handed tax policies.”

Owen said income inequality in Tennessee’s tax system could be addressed by ending what he says are “corporate welfare schemes” that give state assistance or tax breaks to companies that relocate or expand in Tennessee.

“Massive corporations receive hundreds of millions of our fellow Tennesseans’ tax dollars,” he said. “We should work to keep taxes low across the board and treat all Tennesseans fairly, rather than create a tax system — like we have at the federal level — that takes from some to give to others and allows the government to pick winners and losers in business.”

Justin is, of course, right: you don’t even have to accept the radical anarcho-capitalist notion that the socially optimal level of public sector spending is $0 to know that corporate welfare is harmful, and that Tennessee has no problem throwing money around like a drunken sailor as it plays suitor to manufacturing enterprises. But bracket and set aside the tax competition aspect of income taxation, or the effects of corporate welfare on Tennessee’s fiscal calculus. Most problematic in the TFP‘s story is the claim that Tennessee’s tax regime is the “most regressive” in the nation. What the study actually concludes is that, relative to income parity achieved by federal taxation, Tennessee’s tax system is the most regressive (although it seems Mississippi is competing heavily with us). That’s a really important distinction! Even using ITEP’s numbers, six other states have more regressive state & local tax systems than does Tennessee, with Washington State topping the list.

Sales taxes — consumption taxes of any kind, really — are by definition the most equitable form of taxation known to man. Literally everyone pays the same rate! There’s no such thing as an offshore account to shield earnings from the sales tax that the supermarket collects when a rich person buys groceries. No army of accountants can make sure I pay 7 cents on the dollar in taxes on a t-shirt while you foolishly pay 9.25 cents for the same t-shirt. Assuming everyone who pays sales taxes is living, everyone pays for the same baseline level of basic subsistence. Wealthy people are more likely than poor people to buy healthier subsistence (fresh produce, ample proteins, etc.), and those items cost more money than the sugar- and high fructose corn syrup heavy foods one finds in convenience markets in the “food deserts” of poor neighborhoods. What does that mean? A wealthy person buys more, bigger, higher-priced stuff, and, at the same level of taxation, therefore contributes a higher share to the overall revenue pool than his or her working poor counterpart. People who don’t own property may pay additional sales taxes in rent, but people who do own property fund public education and whatever positive externalities accrue to society as a result. Rich people are more likely than poor people to own vehicles — nice ones, too, with large engines and premium gasoline needs — and are likely to drive themselves places rather than carpool. That means they consume more gasoline, and pay a higher proportion of all gasoline taxes and sales taxes on gasoline purchases. (Note: given a recent surge in subprime auto lending, this trend in the share of gasoline taxation borne by rich people may shift, although it’s hard to believe some models that project two billion automobiles on the planet by 2030, which would nearly double a 2002 estimate of vehicles owned worldwide — see the related Freakonomics post for a layperson’s guide to that study — but the continued penetration of electrification and alternative fuel technologies in markets for standard consumer automobiles may cancel out or actually ameliorate any purported shifts in the proportion of gasoline taxes paid by the working poor as members of that stratum gain access to personal vehicles through subprime financing.)

But the activism of the modern American mainstream press isn’t designed to tell you these truths; they’re designed to focus on income or wealth inequality alone. It’s not fair, so goes the thinking, that one person earns more income than another person. There are all sorts of neo-liberal arguments underlying this presumption — for example John Rawls’s famous thought experiment in A Theory of Justice in which he argued that Wilt Chamberlain has no legitimate moral claim to his riches because his height and talent for playing basketball were just metaphysical accidents, the products of cosmic luck and a genetic cocktail over which Chamberlain himself had no control. I think that’s a ludicrous argument, because instead of doing any one of a thousand or more other things with his life, Wilt Chamberlain voluntarily dedicated it to practicing, playing, and perfecting his basketball skills, to the point that he earned a handsome income entertaining large crowds of ticket-buyers. But it’s a presumption nonetheless and one that self-appointed referees of the game of social justice would do well to constantly challenge rather than assume as given, because it leads to bad economic thinking. There’s nothing inherently wrong or immoral with Wilt Chamberlain (or Michael Jordan or Kobe Bryant) being better at basketball than I am. There’s nothing inherently wrong or immoral with me having higher aptitude for writing stuff on the Internet than any of them do. We are all different beings with different attributes, desires, skills, instincts, etc. Poverty (and nudity, literally) is the natural state of man!

If we accept as axiomatic this aspect of human existence, then it’s hard to commit to a project that wants to turn everyone into essentially the same person through coercive, corrective compensatory economic policies. That’s not to say that there aren’t broader institutional factors (like systemic racial or sex-based prejudices) that artificially alter the income distribution, or that we shouldn’t be working to reduce barriers to a better life for society’s most vulnerable. We absolutely should! But taking someone’s stuff at gunpoint and giving it to someone else isn’t the way to do that.