Is forcing those on the dole to take a drug test "uncompassionate"?

Jeff Woods thinks so. Well, I must be uncompassionate. I have no problem with requiring those who want a government handout to provide some assurances that they are not shooting up my tax dollars on their fix. He goes so far as to suggest requiring those who utilize the FONCE exemption to take a drug test as well. Gilbert Martin gives Woods a knock-out response in the comments.

Dog Bites Man - Newspaper Adopts Democrat Talking Points

The Chattanooga Times Free Press comes out in favor repealing the FONCE exemption. They essentially adopt the same language of the Tennessee Department of Revenue by saying "It’s also making Tennessee a tax haven for out-of-state businesses whose owners can reconfigure their enterprises to fit the FONCE criteria." Like the Reagan Farr at the Department of Revenue and Phil Bredesen, they say it like it is a bad thing.

One could only wish that Tennessee would become a tax haven for out-of-state investors. Can you imagine the amount of economic growth that this state would experience at the expense of others. We need more reasons for people to invest their money in Tennessee, not fewer.

It's good to see someone else vocally opposing the FONCE repeal

Mark Hill speaks out against the FONCE repeal:

Mark Hill, the government affairs committee chair for the group Real Estate Investors of Nashville and vice president of James Talley & Associates, sees it differently and is hoping that legislators block what he perceives as move that would be detrimental to small business.“The current family exemption,” Hill states, “has become a tool for many small businesses to shield themselves from this extremely litigious society without having to pay the enormous costs placed on the corporate entities by the state government. Taking an extra 6.5 percent of the net earnings will drive many small businesses out of business especially during this economic downturn. “The additional one-quarter percent tax on the net worth would just be the twisting of the knife after killing the small business,” he added. “During a time when we should be promoting small businesses and innovation the governor is looking to squash it to temporarily feed the hunger of an already bloated state government.”

FONCE exemption divorce?

Bill Freeman resigns as treasurer from the Tennessee Democratic Party. Is it too hot in the kitchen?

Ron Ramsey continues to signal surrender on FONCE issue

Ron Ramsey knows full well that the repeal of this exemption will hurt struggling businesses. Yet, he continues to signal that he is willing to "compromise" on the issue by going along with the tax-hungry Democrats in Nashville. Ron, we don't need compromise; we need leadership. How can you expect to garner support for a governor's race if you can't be a leader when it comes to fighting tax increases?

Hey Ron, a compromise on a tax increase is still a tax increase

Ron Ramsey expects that there will be a compromise that will not tax income from smaller FONCEs. There should be no compromises when it comes to ceding more power to the government. Unlike Phil Bredesen, Ramsey at least understands that money is fungible.

Kent Williams signals he is ready to follow the Bredesen line

Kent Williams, the disgraced former Republican from Carter County who currently serves as Speaker of the House, signals that he is willing to "compromise" to close the FONCE "loophole." Kent, it isn't a loophole. While Kent was busy serving up lasagna to the locals, the legislature knew full well what it was doing when the FONCE exemption was enacted. It is not a loophole, but I am not surprised to see Mr. Backroom Politics ready to pay tribute to his Democratic overlords.

Bredesen ties FONCE repeal to law enforcement

Let's recap Bredesen's strategy: First, create the impression that the FONCE exemption is a loophole (so people will think it is illigetimate and unintended by the legislature). Second, tie the FONCE to wealthy families. Third, create a bogeyman. Fourth, tie the lack of repeal to a loss of law enforcement jobs (because everyone loves law enforcement). It's quite a [;am and is, as I've said before, a textbook example of the Democrat tax increase process. Apparently, Bredesen could not find a way to tie this tax increase to something "for the children" instead of "law enforcement", but he has probably played that card too many times already. Of course, it is not too late for the administration to try that tactic.

They will stop at nothing to try and subject more and more families to an income tax, which is an essential element of the F&E tax.

UPDATE: Earlier, I meant to include the one thing missing from their plan - having Jimmy Neifeh ramrod the bill through the House like he has done so many times in the past over clear objection (everyone should watch the linked video to see how Naifeh ran the House). Looks like Bresesen has his man in the House to cover it for him anyway.

Bredesen continues class warfare

Phil Bredesen calls the FONCE exemption "a loophole for some of the state's wealthiest families." Sure, there are some rich folks who use the exemption and those same rich folks will find other exemptions if the FONCE exemption is repealed. Bredesen knows the only way to get support for this is to convince the dumb masses that this is an attack on the wealthy. It's a tried and true Democrat strategy and will problably work again! The administration's approach to this tax increase is textbook.

Who will pay this tax?

A 2 percent premium tax on HMO's activities? I wonder who really pays this tax. Could it be.... those who pay the premiums. How about this headline: "Governor proposes 2% hike in insurance rates for Tennessee residents."

Income Tax Advocates Support FONCE repeal

Tennesseans for Fair Taxation apparently never met a tax they didn't love. Ask yourself what other reasons this group might have for supporting additional taxes.

"Very Negligible Impact"

Reagan Farr believes that excluding FONCEs with holdings valued at less than $250K from the reposed FONCE tax exemption repeal would have a "very negligible impact". Well, except for the impact on those who still have to pay the tax if the exemption is repealed....

This issue is almost a case study of the "soak the rich" mentality of the Democrats.

Bredesen spends his money before he gets it

As is typical for tax-and-spend types, Phil Bredesen has decided to spend his money before he gets it. Specifically, in presenting his budget, he is relying on expected proceeds from the repeal of the family owned non-corporate entity franchise & excise tax exemption (FONCE). Bredesen has already earmarked the money he wants to get from raising taxes on family-owned businesses. While I believe that the positive tax impact will be far less than what Bredesen expects, it is telling that he has already spent the money. It is reminiscent of the lottery winner who fantasizes about what he will do with the winnings and then goes out and blows a wad on some frivolity.

Now it sounds like Ron Ramsey and Jason Mumpower are about to cave to this pressure. Here's an idea - cut spending. When you have cut it until it hurts, cut some more. Don't cave in to Bredesen's bullying tactics.

Should we expect a rational government?

Not as long as big money is buying off the crooks. Sean Braisted raises the question of why Phil Bredesen's administration is so bound and determined to repeal the FONCE exemption but refuse to allow customers to buy wine in grocery stores. If we had a news media that sought to investigate, we might know the answer. Instead, they would prefer to tow the party line with unbalanced, bogey-man hit pieces such as this. Here's an idea for a news story - what group has the most to lose by allowing wine sales in grocery stores? Hmmm. Could it be???? No, that's too easy.

Or maybe not

Kleinheider suggests that the FONCE exemption may be "a loophole that one might want to close during a budget crisis and glocal [sic] economic meltdown." I would suggest that a big part of the problem right now is that people are afraid to invest because they do not know when their competition will be the government. Investors want some level of predictability and the government is not giving us that. Tax increases are not the answer.

Ron Ramsey and Jason Mumpower are right

The repeal of the FONCE exemption is a tax increase, pure and simple. This is yet another report that quotes Farr's "tax haven" meme and the fact that a wealthy New York strip club owner utilizes the exemption. The Democrats' approach to repealing the exemption appears to be to characterize the exemption as an unfair benefit to the wealthy and to pull in the worst-possible character they can find to personify the issue.

Those evil rich

The Bredesen-lovers of the world are doing all they can to turn the proposed FONCE repeal into a wealth-envy issue. The repeal of this exemption would affect a lot of working families who own rental real estate to try and build their future. I have just as much evidence of that as Reagan Farr has for his supposition that this is a tax break for the wealthy. I several people who are just small-time real estate investors who take advantage of this exemption. It gives them a greater incentive to invest because of the perception of limited liability. The author of the linked article even goes so far as to call this a "tax loophole for the super wealthy." Hardly.

A Review of Reagan Farr's Report

Reagan Farr's report on the FONCE exemption can be found here. It continues the wealth-envy game I first noticed in this article that also tries to turn the exemption repeal into a morality play. Farr's report basically tries to frame the issue to address three issues "the wealthy", "fundamental fairness" and "reasonable[ness]." He probably should just say "the evil rich are taking advantage of the tax law to their benefit." Of course all taxpayers do that. There are plenty of people who are not rich who utilize the FONCE exemption. The fact is, Farr has no way of knowing the financial position of the owners of the entities. He merely assumes they are wealthy in order to set up an easier target to attack (because the Democrats have trained us for years that the rich are evil and must be stopped at all costs).

He further assumes that ending the FONCE exemption will result in more people paying the tax. That may be true in the short term, but he believes that those who do not pay the tax will opt to become "exempt obligated member entities." For those of you who don't know, that is another franchise & excise tax exemption where the members of the entity opt out of limited liability protection. They continue to pay the $300 per year to Tennessee to keep their entity in place. Farr is crazy if he thinks they will keep the entity in place using the other exemption. That exemption will work for only those entities who hold non-liability producing investments (such as stocks) or those who have the entity in place for estate planning purposes. That is likely relatively few of the entities that collect "rent" as it is currently defined.

Rationale for FONCE exemption

Reagan Farr and Phil Bredesen believe the FONCE exemption should end. This is nothing but a tax increase and they are doing everything they can to play the wealth-envy game that Democrats love to play. They have tried to get the exemption repealed in the past and have failed. This year, they are engaging in a full-court press with the help of the media that is all too happy to play along with their wealth-envy game. This article in The Nashville Scene blog goes through a Q&A with Farr. Far states that "It's a loophole that has no underlying rationale. ... You don't create exemptions based on somebody's bloodline. ..." He goes on to inquire "how is it you can justify over 200,000 businesses competing in a commercial marketplace and paying their fair share of franchise and excise taxes when 2,600 people competing in the same marketplace benefiting from all the same services don't pay tax simply because they're wealthy or they can go into business with wealthy family members."

The answers are simple, Mr. Farr. First, there is an underlying rationale for not taxing those entities. Tennessee does not have a state income tax other than the Hall Tax on interest and dividends. If an individual or a family buys a rental property in their own name, they do not pay any Tennessee income tax on the property. If they decide to pay Tennessee $300 per year for an LLC, they can gain more assurance of limited liability, but how much do they truly gain? If they have insurance on the property (which they will likely have regardless of whether an entity is in place), the additional protection afforded by an LLC really only comes in to play if there is a situation where the insurance company fails to pay. That is truly a rare case, but it does happen. Does it happen any more frequently than a plaintiff's lawyer attempting to pierce the entity veil to create personal liability on the part of the members of the LLC? Probably not. Absent the exemption, most people will likely just opt for higher insurance coverage limits. The $300 per year minimum that Tennessee gets from these LLCs will be lost.

Second, the fact that the exemption attracts investment in commercial property from inside or outside of Tennessee is reason enough to have the exemption. Outside investment makes these properties more valuable. It increases the availability of housing and decreases its cost. Farr and Bredesen think that is a bad thing because they would rather run up the cost of housing and decrease investments from out-of-staters so they can use the (temporary) revenue increase they "believe" they will enjoy to create more entitlements.

Quiz for Reagan Farr and Phil Bredesen

Q: What do Bermuda, the Cayman Islands, the Cook Islands, Guernsey, St. Kitts, Nevis and the Channel Islands all have in common?

a) Their governments saw the wisdom in turning them in to tax havens to attract outside investment.
b) You likely would have never heard of these places if they weren't tax havens.
c) Prior to gaining their status as tax havens, these places were basically third-world crapholes with few jobs and little industry.
d) After gaining status as tax havens, these places have experienced phenomenal economic growth due to the creation of jobs in the financial industry, the effects of foreign investment and an increase in tourism caused by the fact that these places are simply "nicer" to go to after the investment.
e) All of the above.

Apparently, the Department of Revenue has labeled Tennessee as the next Grand Cayman Island. Reagan Farr's report says that the family owned non-corporate entity (FONCE) tax exemption is "making Tennessee a tax haven for out-of-state, wealthy investors who want to shield their commercial property from taxes." Are they so stupid to realize that a lot of forward-thinking governments become tax havens because they WANT out-of-state investors to come to their jurisdiction to invest?

We need more tax breaks like the FONCE exemption, not fewer.