It could be called the Memphis Surcharge.

It’s the extra taxes Memphians pay as a result of the disproportionate percentage of children who live here.

It’s largely the reason that the tax rate in Memphis and Shelby County is so much higher than Nashville/Davidson County.

The Difference

While it might not look like much of a difference on a comparison of school aged population on a list of Memphis and comparable cities, that demographic bulge of a few percentage points ripples throughout the budgets of Memphis and Shelby County governments, increasing costs, budgets and the tax rate.

In a listing with Birmingham, Charlotte, Chattanooga, Cincinnati, Knoxville, Little Rock, Louisville, Nashville and Orlando, Memphis and Shelby County are #1 in the percentage of its school-aged population – 23.2 percent in the city and 23.4 percent in the county.

That percentage is about 10 percent higher than the second place city and roughly 20 percent higher than our regional rival, Nashville. As point of reference, 18.8 percent of the population in Nashville/Davidson is school-aged.

The Ripple Effect

The effect of this difference ripples through the city and county budgets, largely in the money required for education. In Nashville, that’s 28.4 percent of the tax rate. Here, it’s 42.03 percent here.

Put another way, $1.21 of the combined Memphis/Shelby County tax rate is directly caused by this bulge in students, and this is the Memphis Surcharge.

Without this bulge in the number of students, the combined city-county tax rate here would be $5.24 compared to the enviable Nashville/Davidson tax rate of $4.69.

The Bottom Line

Most of us are familiar with the property tax comparisons trotted out by developers and homebuilders every time a tax increase is discussed. It’s purpose is to suggest that local governments here out of control.

One such list, widely circulated in 2005, showed the combined city-county tax rate here as $7.47, compared to $4.69 in Nashville/Davidson, $5.10 in Chattanooga, and $5.50 in Knoxville. The conclusion: Memphis and Shelby County governments are spending like drunken sailors.

While there’s always room for more efficiency in city and county governments, unmentioned in discussions about our tax rates is the real culprit: We have more kids.

The Number Worth Remembering

Here’s the most important number in this barrage of statistics — $175.3 million. That’s how much additional public costs result here from these additional students.

It’s clear that fewer subjects are as ripe for political posturing and manipulation as our onerous local tax rate, but it’s a shallow explanation that focuses solely on public performance.

All of this is the gospel according to Marlin Mosby, managing director of Public Financial Management and finance director for the City of Memphis from 1975 to 1984. It’s his persuasive contention that the public sector back then were no smarter or more creative than today. His point is that mayors and directors in the “good old days” weren’t trapped beneath a demographic wave of young people, robbing them of options for innovations seen in other cities that have greater flexibility precisely because they have a much percentage of students.

A Taxing Situation

These days, Mr. Mosby is a man on a mission – to clear up the misunderstanding of the nuances of public budgeting, and his always frenetic, ever opinionated and constantly fascinating presentation is a yearly favorite of Leadership Memphis classes.

The students alone would be problem enough for Memphis, but there’s also the fact that we have one of the most regressive tax structures in the U.S.

In a studied 51-city analysis by the Office of Revenue Analysis for the District of Columbia Government, Memphis was among the worst three cities for its regressive tax structure. In the meticulously documented report, the analysts looked at the tax burden for the largest city in each of the 50 states and the District of Columbia.

Too Few Options

Our city’s taxes are regressive at their core, meaning that low-income families pay a larger share of their incomes in taxes than high-income families. That’s because local government has an overreliance on property taxes and sales taxes, when compared to other governments across the U.S.

With no real options except the two primary tax sources allowed by state law, city and county governments are left with two inequitable places to go for more revenues – the regressive sales tax or the regressive property tax.

While local efforts to expand tax sources are well-intended, in the end, the current tax structure is so badly flawed that even new sources are just stopgap answers that don’t address the real inequities in the system.

Tale Of The Tape

The study analyzed the tax burden for families with average incomes of $25,000, $50,000, $75,000, $100,000 and $150,000. The assumptions for the study were that each family has four members and owns a single family home within the city limits.

The average tax burden for the 51 cities across the U.S. was 7.3 percent for families earning $25,000; 8.3 percent for families earning $50,000; 9.1 percent earning $75,000; and 9.2 percent at the $100,000 and $150,000 levels.

In other words, most cities have a tax structure that responds to a person’s “ability to pay.” Memphis does just the opposite. The more a family earns, the less it pays. The family earning $25,000 pays 7.0 percent, right in line with the average for the 51 cities.

More Is Less

But, the family earning $50,000 doesn’t pay more; it pays less – 6.2 percent. A family earning $75,000 pays 6.3 percent, one-third less than the national average; and the $100,000 income family pays 5.9 percent and the family earning $150,000 pays 5.6 percent.

O.K., if you know anything about this blog, it is our obsession with statistics. So, let’s boil it down: In the higher income brackets, Memphis taxpayers pay a smaller percentage of their income in taxes than families making one-fourth as much. In fact, these Memphis high-income families are paying roughly 40 per cent less than the average of 51 cities.

Birth Control = Tax Control

But Mr. Mosby would add one more factor driving out tax rates higher. It’s his contention that the final nail in the local fiscal coffin comes with the Tennessee law that requires rollbacks of the tax rate to offset property values increased from appraisals. As a result, public revenues don’t grow to keep pace with inflation while expenses do.

The more that we look at statistics regarding students, the regressivity of our tax structure and the mandated restrictions put on local governments by state politicians, the clearer it is that they pose a constant challenge for Memphis and Shelby County in the competition for economic growth.

While Memphis Fast Forward may suggest that the answer is greater efficiency in city and county government, the truth is that we can never achieve that goal in its truest sense as long there’s the Memphis Surcharge to contend with.