Refuel the Budget with an Increased Tax

Tennessee can solve its budget crisis with a gas-tax hike

An interesting thing happened while gas prices hovered around $3 per gallon: Motorcycles proliferated. The climb over $2 per gallon idled a lot of Hummers and shiny work trucks, but it wasn't enough to get many people to give up steering wheels for handlebars. The next dollar did that. This summer, new riders were common and easily recognized by their inadequate clothing.

Now gas prices are back to around $1.50 a gallon. With Clinton administration officials getting federal jobs, you can almost imagine the past eight years never happened. We all want to forget, especially Republicans. Sadly, reminders are everywhere. Layoffs at Sea Ray, Panasonic, Jewelry Television, Newell Rubbermaid, and more have boosted joblessness. Goody's looks to be fading, and Thompson Photo and the Disc Exchange have shut West Knox stores, pulling back to home base.

The Tennessee Lottery injects more than $250 million per year into education, yet University of Tennessee officials are talking about layoffs. The state tax system is tied directly to consumer spending, which is falling short of projections. Gov. Bredesen has already asked state officials to make cuts, and dealing with the shortfall will be an immediate priority when the General Assembly convenes in January.

In the current economic climate, laying off state employees is simply unacceptable. Unemployment burdens government services in several ways, and Tennessee should do all it can to retain its workers so as to not trigger further hardships. Shedding instructors and non-tenure-track professors would shift teaching responsibilities to graduate students and remaining faculty, and the result would be a decline in educational opportunities for all students and diminished research quality, leaving us less adaptable as we try to pull through these tough times.

Instead of contributing to the problem, the state government must stand firm against the troubling winds, and that means finding new sources of revenue rather than new flesh to cut. One good idea that has already been bouncing around Nashville is a shift to combined reporting for corporations operating in the state. That means corporations file figures for their whole operation, not just for activity inside Tennessee. This prevents them from playing accounting games that shift profits into states with the lowest tax rates, and it is fast becoming standard operating procedure nationwide. Estimates suggest this could up collections in Tennessee by as much as $250 million.

Gov. Bredesen has also identified a loophole for family-owned commercial real estate that could net the state an extra $45 million if it is closed, but with the shortfall projected at $800 million, these fixes still leave the state wanting. Clearly, a new source of revenue is needed, and the drop in gas prices presents the perfect opportunity. Tennessee has not raised its gas tax since 1990. Currently it is nine cents per gallon below the national average. For diesel fuel, Tennessee is 11 cents per gallon below average.

Georgia and North Carolina are both right at the national average, whereas Tennessee's other neighbors cluster together. The long haul on Interstate 40 minimizes the opportunity for east-west travelers to wait until they are out of state to refuel, so our visitors can help shoulder the financial load.

The Tennessee Department of Transportation estimates that each penny increase in motor fuel tax yields $30.5 million. Only 0.7 cents of the 21.4-cent gas tax goes to the general fund, with 7.9 going to local governments and the rest to TDOT, so a hike in the gas tax would need to be specifically allocated to the general fund if it is to help balance the budget.

An extra dime or two per gallon would still leave gas prices lower than what we have grown accustomed to in recent years, and with so much investment in energy efficiency and alternative fuels right now, a higher gas tax is yet another incentive toward independence from foreign oil. The time is ripe and the need apparent.