All eyes on Senate Finance for tax proposal

Tax on groceries

Sixteen states have state-imposed tax on food. Three others allow local governments to tax only food.

Highest state-imposed food tax rates

State Amount

Mississippi 7 percent

Tennessee 6 percent

Kansas 5.3 percent

Lowest cigarette taxes per pack

State Amount

South Carolina 7 cents

Missouri 17 cents

Mississippi 18 cents

Tennessee 20 cents

U.S. Median 79 cents

* SOURCE: Federation of Tax Administrators as of Jan. 1, 2006

By Bobby Harrison
Daily Journal Jackson Bureau

JACKSON - The state House's overwhelming passage of legislation cutting the tax on groceries and increasing the cigarette tax places the issue squarely back in the lap of Senate Finance Committee Chairman Tommy Robertson, R-Moss Point.

Last year Robertson was a leading advocate of the proposal. But this year he had said he personally opposes the concept and may kill it in his committee by not calling it up for consideration.

It is not unusual for powerful committee chairmen to kill legislation by not allowing it to be voted on, but in recent years it has become more difficult to kill major pieces of legislation in such a way because of public pressure applied.

Plus, Robertson would be taking a position in direct conflict with the person who made him chairman of Finance - Lt. Gov. Amy Tuck, who first proposed the concept to decrease the grocery tax and offset the revenue loss by increasing the cigarette tax.

Tuck, who is still hoping Robertson brings up the Senate bill by Wednesday's deadline, hailed the House passage of the legislation last week as a step in the right direction.

"I think there is strong support for the bill across the state," Tuck said. "I hope all our members look at the importance of the bill, look at that support and consider it because it is good public policy."

Senate Public Health Committee Chairman Alan Nunnelee, R-Tupelo, who is the chief author of the Senate version of the bill, was more direct. He said the House's strong vote indicates the support the legislation has, and it should not be bottled up in committee.

"I think you would see the same support in the Senate," said Nunnelee. "...I think either the Senate bill or the House bill merits a vote by the committee and the full Senate."

But not everyone believes Robertson should bring up the legislation.

Sen. Charlie Ross, R-Brandon, who has been a leading opponent of the legislation and is a candidate for lieutenant governor, said, "This is not a situation where people have not been able to vote on the issue. We voted three or four times last year. This is different from a situation where a body has not been allowed to vote."

Last year the House and Senate passed two versions of the bill, but both proposals were vetoed by Republican Gov. Haley Barbour. The Senate could not garner the two-thirds majority needed to override Barbour's veto.

Sen. Shannon Walley of Leakesville, one of the few Democrats to uphold Barbour's veto last year and who recently switched to the Republican Party, doesn't want to vote on the issue again.

"Not really," he said. "I would rather see it die in committee."

In an election year the issue is one that is difficult for many legislators - especially Republicans - to confront. Polls show the bill is popular, but at the same time it is opposed by a powerful Republican governor who holds tremendous sway over legislators in his own party.

The issue is being considered among a backdrop of a March 1 deadline for people to qualify to run for political office.

That could explain why the House version of the legislation received 91 votes - more than it received at any point last session.

Robertson has until Wednesday to take up the Senate version of the bill, but until March 13 to act on the House proposal.

Both cut the food tax from 7 percent to 3.5 percent and increase the cigarette tax from 18 cents to $1 a pack.

How fake finance companies defraud members of the public

Finance Houses Association of Nigeria (FHAN) recently embarked on a campaign to sensitise the public on the re-emergence of fake finance companies. In this interview President of the Association, Mr. Eddy Osarenkhoe, explains the operations of these fake finance companies and how members of the public can distinguish between genuine and fake finance companies.

What informed the recent campaign of FHAN on fake finance companies
The issue is a very simple one, you will recall that around the 1990s towards 1993, there was a crash in finance houses and a lot of those who caused the crash were these fake finance houses. You recall names like Forum, Umana Umana and Money Tree and some other funny names we heard all over the country. When people just set up finance companies not to do any business but just to take money from people, deceiving the unsuspecting members of the public. The way it works is simple. It is like what we call teaming and lending in accounting. That means, in the general parlance the way cashiers use to defraud people. They take money from people today to cover up the one they took yesterday and they will hope that the whole thing will continue to go on for a long time.

More people will continue to come. So they take money from this people to settle those people they are owing. Such thing will go on for a long time unchecked until there is a halt in the system. That was what happened during the era of June 12. when there was this June 12, we were able to then see immediately when they could not meet their liabilities that some of them were not really doing business. They come promising fantastic interest rates and funny enough because of the poverty level of this country, people are usually tempted by such high interest rate and they believe that their messiah has come. A lot of people put their life savings, even some people who retired, their pension savings were all put in there, and some even died in the process when the crash occurred.

So recently the Finance Houses Association of Nigeria, as the self regulatory body for finance houses, registered by the Corporate Affairs Commission (CAC), and approved by the Central Bank of Nigeria (CBN) to regulate the activities of finance houses in this country, started seeing these companies coming up again, a lot of them started rearing their ugly head again all over the country. Even some of them as bold as putting up billboards, distributing fliers, deceiving people that they are going to help them manage their investment, they will help them to create wealth. And Nigerians, as gullible as we are, we have forgotten so soon what happened to us in the 1990s, when people died in the process of having lost all their life savings. And a lot of them are now patronizing them.

We have a host of them. In Lagos Island alone even along Abibu Oki street here, I was surprised, I saw a lot of people lining up with some of these people. And they are all located near the markets, people line up to put their collection with these people who promised them heaven and earth. And because they are able to pay one or two, they go on spreading the news that these guys are performing. And because they are using this teaming and leading method, that is what has kept them on.

And the more people they get they are able to service the ones they got yesterday, hoping to get more people. And some of these poor people would even leave back their money, because they have been paid, so they put it back again. And so they continue to work on that principle and people continue to give them money.

And you know they don’t have any meaningful business. At least this country is in the midst of deregulation, we equally can now see genuine business what they do. And if you are doing genuine business it must be you borrow money somewhere to also do a business venture. And it is from the returns from that venture that you pay your overhead and you also pay the cost of funds which you borrow.

And so we saw it as a threat to our image because when there is trouble the people of this country will say finance houses unknown to them that they are not among our list at all. As we speak we have a list of 59 finance house that are registered by the Central Bank and members of FHAN. Like we told you earlier on this body is undergoing a rebirth. Because of what happened before the new executives came up recently and in an attempt to carve a niche for ourselves, we believe there is a need to discipline ourselves. Create some ethical standards and code of behaviour, to help us operate well and to also have a way too to monitor ourselves to ensure that we are on course, that we are actually giving the best service to members of the public. So that is why we are even calling on the press, to help us in this war, to enlighten people on the need to look properly, like we say in law , “Caveat Emptor”, that is Buyer Beware, the need for people to watch properly before they do any business with anybody, to be sure that they are within the recognized people.

What is the business of a finance house as stated in the law.
That is a very good question. It is very easy and that is one of the reasons we would be going through the campaign. A lot of people in this country are not quite conversant with the role of finance companies. And we are out to educate and enlighten people on our role and who we are so that people can differentiate between the good and the bad and be guided in the way they do their business transactions. Finance companies are registered under the Banks and Other Financial Institutions Act (BOFIA). And BOFIA is under the supervision of the CBN. The same act that empowers them to register banks also empowers them to register finance companies.

And so finance companies by their nature are registered by CBN to carry out these activities with a view to providing financial intermediation services, consultancy services to Nigerians. And the way we operate, you can classify the main functions into two broad business focus which are deposit mobilization which is to raise your funds from the surplus unit of the economy, and provide credit to the deficit units of the economy. A third function which is very critical is consultancy, financial consultancy. You recall that some times ago that we observe that a lot of financial illiterates are around the country. People don’t know where to go for the kind of finance they need. So a lot of them have fallen prey to some of these people who provide the finance. So instead of looking for short term funds to finance what is short term transaction most times they go looking for long term. And this continues for some time.

Also instead of looking for long term equity fund to start their business most people go for short term. And short term as we all know is very expensive and it could cause problems. So those businesses don’t succeed because of mismatch of funding structure. So finance companies by rendering financial consultancy tend to fill that gap for financial adversary. We have seen that that aspect of financial consultancy is missing, a big gap created there. And there are a lot of financial institutions coming into the market with this reforms. There are a lot of sources both local and foreign where people can now source their funds. All these are coming to the market but Nigerians are not aware. So we are in a position, structured to be able to provide opportunities for these our customers to access these funds. One of such funds is the SMEEIS fund.

Though people claim that the banks don’t disburse, they do disburse but you must package your project professionally to go through the test, and pass the test before the banks disburse their funds. So if you are not well packaged, that is why most of them fail. So finance companies are in a position to package the business in a bankable manner so that your project can scale through the hurdles especially the banks. Don’t forget that finance companies, some of them are ex-bankers and both of them are professional chartered accountants.

So that is why I said there are three main areas that finance companies operate. If you look at these three areas there are a lot of opportunities in the market. So for you to look at a finance company that is legitimate and genuine, you must be seen to be structured along this line, not just collecting money and not putting the money in viable business. Most of these fake people if you go to them to finance your project they may not be able to finance your project and if they do it will be unusual.
But what we are saying is that we have clear ways to identify these registered finance companies. Like I said we are 59 as at today. These companies have been licensed by the CBN and they are equally members of Finance Houses Association of Nigeria. So they have both licenses and we have asked our members to display those licenses in their offices. So if you want to deal with a finance company you must be sure it is a licensed financed company and it is also a member of FHAN. Because this is the umbrella body that can enforce discipline and control within our members.

If you find them guilty of any malpractices, you report to us and we will find a way of dealing with them. So we are using this medium to call on people to look properly and check if they fall within the 59 on the list. We will soon be coming out with a publication of this list in some of the papers. But first the finance company you deal with first should be among the ones on this list and for them to be among it means they are not illegal. They are accountable for their actions. The board of directors is known, the management is known, their offices are known, the CBN goes every quarter to monitor their activities like they also do with the banks. They carry out examination on their operations and they give out warnings for them to correct or else they withdraw their license. So those are control measures in place to prevent what happened in the 1990s. so that we can have genuine finance houses operating with global best practices.

What are the major activities of the fake finance companies different from the activities of genuine ones.
What they do from our own investigations, they are not interested in those things that I told you now.It is registered finance houses that play those roles, and they are helping in economic development. They are helping the customers who need money, they can give them money. They also provide a place where they can save, they are vehicle for savings.

They also provide professional advisory services for people in times of their need. So these are things the registered finance houses offer to develop the economy and also help the customers. Whereas these illegal finance organisations are out to defraud. That is their corporate objectives but unknown to the people they give you interest rate that is watering and attractive in nature especially because of the poverty level of this country. People get attracted by such things and so they go for them.

And these guys keep on collecting their money. Like I said earlier on, its like digging a new hole to fill an existing hole. One hole remains unfilled. So they are just there collecting people’s money to pay those who will come to ask and thereby create confidence, so that they can bring in more money. So what they do is residence. Some of them say they deal in oil business and whatever but you can’t continue to raise money everyday to do oil business.

If you want to raise equity, there are known rules of raising equity. Either you go through SEC or through private placement. And equity is raised within a period of one month. So if you want to raise equity to finance your business do it in line with the law, that is what we are saying. You don’t do it everyday. Do it within a period, if you have people who want to subscribe to your business and they also share in your profit at the end of the year. But aside from that if you now want to operate as finance companies, you want to be collecting money, go register with the body that monitor people who collect money from unsuspecting members of the public. Because the idea of registration is to protect members of the public from falling into the hands of fraudsters.

And we have since communicated with Central Bank. They have replied us that they are keeping a tab, they are also on the look out and we should dig out more names. They are interested in what we are doing, they are very happy with it. And we will get more names of such people and forward to them and the EFCC. And very soon you will hear they are been rounded up.

So I will appeal to members of the public and the press anywhere we now find such people, write and report their names to us, to our secretariat, and we will forward the names to the authorities who will deal with them and clear them out of the market.

Avoiding Funny Money

t seems that when it comes to tax increases, the Tennessee House of Representatives likes to work in a fog of confusion. For example, this week the House Agriculture Committee "approved" the Governor's proposed tobacco tax increase...except no one is really sure what they passed. Depending on who you ask on the Committee, they approved a 20 cent, 40 cent or 60 cent tax increase, and they think they approved some kind of reduction in the tax on certain grocery items. So no one is really sure what they passed nor does anyone even know how much new revenue, if any, was generated by the bill that was approved. As the House Republican Leader said, "It was truly embarrassing....It [was] a hodgepodge, hackneyed attempt by the Bredesen administration just to get the bill out of the committee. " Even Finance Commissioner Dave Goetz said "what the bill does" will be "sorted out" in the next committee.

Keeping it in Perspective - An historical sidebar

Unfortunately this is not the first time this has happened in recent House history. In Governor Sundquist's last year, at the height of the income tax debacle, the House Budget Subcommittee and House Finance Committee approved the infamous income tax bill without the bill even being in written form, sending legislative legal staff to actually write up what they thought had been voted on.

Back to the Present...

To have watched the committee was to realize that the majority of the committee was uncomfortable with the Governor's proposal. In fact, the degree of discomfort was so high that the Speaker of the House had to exercise the right we mentioned last week, the right to be a roving committee and subcommittee member. Apparently he felt it necessary to sit through the subcommittee meeting to keep the "flock" from voting down the bill or adjourning without approving at least something. In fact, he told the members that they would work through lunch and, if they had not voted on the bill by then, he'd bring them back Thursday afternoon (when everyone goes home) and again on Friday if necessary. Amazing, is it not, how just one person's presence can so influence people into doing something they might not otherwise have done?

Of Sausage-making and Pork

As Tennessee Eagle Forum President, Bobbie Patray, recently reminded us, there are two things you do not want to see being made, sausage and legislation. Had you been in that subcommittee meeting last week, you'd have thought that Jimmy Dean was in there making Tennessee "Unpride" back on Uncle Rudy's Farm. Who knows what kind of "pork" the Governor had to promise to get enough votes to get his proposal to the next procedural step. Fortunately, the Speaker has promised that the Finance Committee that approved the unwritten income tax proposal in the Sundquist years will clean the thing up for us. That should allow us all to sleep better.

Amending the Constitution

Speaking of politics, a bill is working its way through the Senate that would put a constitutional amendment on the ballot for people to vote on. If approved by the House, it would let the people decide whether the Comptroller, Treasurer, Attorney General and Lieutenant Governor should be elected by popular vote. Right now, the Comptroller and Treasurer are appointed by the General Assembly, the Attorney General is appointed by the State Supreme Court, and the Lieutenant Governor is elected by the state Senate.

But it's the popular thing!

I know voting on everything is popular and part of a growing populist movement, but I think most of us would agree with what my own political experience showed me and that is that money is a corrupting influence in government.

Two years ago, the FBI took a few of our legislators to the Tennessee Waltz because they had found, according to the FBI and now a couple of juries, that their office could be bought. When it comes to campaigning, money is necessary, and money usually comes from people who have an interest in the office being sought.

So, when every professional accounting organization says that auditors need to be "independent" from those whom they audit and when public investors have seen what can happen when they are not (think Enron), do we really want our state auditor, our Comptroller, soliciting huge sums of money to run a state-wide campaign where only those he audits will know what the Comptroller really does? My guess is that those agencies who get state money, who the Comptroller audits from time to time, will have a real interest in who the auditor is. And, unlike other races between Republicans and Democrats, there is no real "other side" to point out the differences in "accounting philosophies." In fact, there should not be any differences.

The same can be said of the state Treasurer who is responsible for investing the state's money, including the several billion dollars held in the state's retirement funds for state employees. Who would be most willing to contribute large sums of non-tax deductible dollars to a "political" race for a position that does not affect public policy? Might I suggest that it would be investment companies who want to curry the Treasurer's favor in the hope that their investment products would "beat out" their competitors that did not give as much money to the campaign or, God forbid, gave to the other candidate.

Let's avoid the same song and dance we've sung and danced before.

I fear it will be nothing more than a race to see whether the Democrat Comptroller or Treasurer or the Republican Comptroller or Treasurer can win. And, unfortunately, a lot of that may depend on who can raise the most money.

While the two men holding these positions today are honorable men, is there a person who is above temptation? At least now any "payments" would be purely illegal kickbacks. But campaign contributions that can win favor with an official is perfectly legal. This all sounds like a recipe for disaster for those who know the Tennessee Waltz and for those who remember how Rocky Top played in the Secretary of State's office back in the 80's. Wonder what tune will be playing next?

Let's also not play the song on side two.

Of course, there is an important corollary here. If politics is not to be played with these types of offices, then those in these offices shouldn't play politics either. In this regard, there is another bill pending before the General Assembly that needs to pass, namely, a bill that prohibits the Comptroller and Treasurer from engaging in political activities on behalf of candidates for political office and, in particular, helping candidates raise money. No doubt the same concern applies – people may feel a need to contribute to a candidate the Comptroller or Treasurer supports in order to keep those officials happy.

We just don't need to permit this kind of thing. The Comptroller and Treasurer's office do not need to be made any more political than they already are in having to win the support of legislators in order to hold their positions.

An interesting political twist.

What is interesting in all of this is that pure party politics seem to be a bit reversed. Republicans, who are inching ever closer to controlling the election of these Constitutional officers, are the ones who voted to send the constitutional amendment for popular election to the Senate Floor over the opposition of the Democrats on the Committee. And Democrats are opposing a method – popular election - that would at least give them a shot at having a Democratic Comptroller or Treasurer should they ever lose control of the General Assembly. Hmmm.

Little things can make a big difference, but you may never know the difference.

All of us from time to time get tired of folks talking out of both sides of their mouths. Sometimes we do it unconsciously. But when we think someone is doing it on purpose, we generally don't like it. And we sure don't like it in our politicians. Sometimes there are important, but un-noticeable little things that politicians do that involve political sleight of hand that allow them to make everybody happy.

Here's what I mean. Recently the House Subcommittee on Local Government heard expert testimony about the negative impacts of sex oriented businesses in our communities. The proposed bill, which would create a buffer zone of 1000 feet between such businesses and schools, child care facilities, churches, and residences, recited almost 2000 pages worth of studies substantiating these negative effects. The reason for the recitation of these studies: to establish a basis for the legislation that would withstand constitutional challenge from the inevitable lawsuit by the sex industry and ACLU types. Without this evidence as a basis for the law, defending the law is an uphill battle.

Why would Strip Clubs and Adult Bookstores be okay with restricting their businesses?

Interestingly, the lobbyist for the strip clubs said that they were "okay" with the bill ... as long as it did not include the legislative findings. Of course, these businesses know full well that deletion of those finding helps build their case to get the law struck down. So, for them the law is fine as long as legislators give them the leeway they need to have it invalidated in court.

We don't know yet what will happen, but it sure appeared that some lawmakers were willing to pass the bill without the legislative findings, even though the lawyers told them it would make the bill much less defensible.

Trying to Dance on both sides of the Pole

Now why might some of these lawmakers do that? Why would legislators who say they support the bill take out language they know is critical to the defense of the law, at the request of the strip clubs? Why would they just not vote against the bill if they don't really want it to become law?

Perhaps it is so they can play political sleight of hand with us. Consider this, without the critical language, they can still win the favor of a majority of folks back home because they can say they voted for putting restrictions on these kinds of business. But they can also win the favor of the strip clubs and adult bookstores because, unbeknownst to their constituents back home, they helped pave the way for the law to be struck down. This defeat in the courts then give legislators a double bonus; it allows them to also bemoan the invalidation of the law with a wringing of hands and point their finger at those activist courts for foiling them at every turn.

Let's hope that's not the case when the bill is taken up this coming Wednesday, but you ought to know how some may choose to "play the game." We'll let you know on this one whether families and neighborhoods win or if the sex oriented businesses get the wink and nod they need to overturn the law.