frank_talk (2007-10)

Listen to Joseph

Legislature is leaving us vulnerable when the cattle turn lean

by Frank Cagle

In the 41st chapter of Genesis, Pharaoh has a dream in which he sees seven fat cattle being devoured by seven lean and ill-favored cattle, and he seeks an answer to this riddle. Joseph, who had been sold into slavery in Egypt by his brothers, explains the dream to Pharaoh. Egypt would have seven good years of agricultural production. Food would be plentiful. But these seven years would be followed by seven years of famine.

Joseph suggested a fifth part of all the foodstuffs produced during the plentiful years be put into storehouses and saved for the seven years of famine. Pharaoh ordered it done and gave Joseph the responsibility of carrying out the plan.

It is normal in a time of plenty to kill the fat calves, eat all the corn and feast at the banquet. There is very little attention paid to the dangers of the future and little provision is made to cushion the blow--regardless of centuries of history.

There is no place in which this is truer than in government, and the state of Tennessee is a prime exemplar.

During the 1990s Tennessee's economy roared along. Revenues collected far exceeded population growth and inflation. But we spent it all, mostly on an expanding the TennCare health program that came to include one-fifth the state population. Then we had a recession. Revenues tanked. There was much wailing and gnashing of teeth amid charges the state tax structure was inadequate. Structural reform was demanded.

The effort to enact an income tax failed, and the General Assembly increased the sales tax in 2002. Within a year the extra billion dollars in revenue and the improving economy again had the revenues pouring in at faster rates than growth and inflation. We are near the end of the "seven good years" of the parable.

Despite state coffers being full, Gov. Phil Bredesen proposes a 40 cent increase in the tax on cigarettes to be used for education. Republicans in the Legislature propose instead using the tax increase to eliminate the tax on food. They are both wrong.

It is true Bredesen has been filling the storehouse. The state's Rainy Day Fund is at record levels. It would see us through a mild recession under current budget parameters. But the state budget has been increasing each year, and Bredesen's new pre-K education program will soon set the state on a spending spiral not seen since the first decade of TennCare.

The Republicans are pushing the popular notion that we can eliminate the sales tax on food. Wouldn't it be pretty to think so? There are several things wrong with this approach. Bredesen is correct to say it is fiscally irresponsible.

Tennessee's budget relies heavily on the sales tax. Even during a recession revenues don't plunge. That's because grocery sales taxes are steady. People still have to eat. Can you imagine the state revenue impact should sales taxes be levied only on discretionary spending? Sales taxes on groceries are always a huge source of revenue, and they provide the stability that enables us to survive economic downturns.

If it helps in reducing the overall sales tax rate, then go ahead with the tobacco tax increase. But when we have run budget surpluses three years in a row, a discussion about increasing taxes for new initiatives also seems fiscally irresponsible. Sounds like Bredesen is looking to finance a legacy.

The sales tax code is already shot through with exemptions. Special interests have exempted all sorts of things from sales tax. We are getting to the point where our sales tax system, supposedly being levied on all sales, is becoming as full of loopholes as the federal income tax code.

We need to be plugging loopholes, not creating another large one.

Republican legislators should be proposing a half-cent reduction in the sales tax rate. Pass a budget that lives within those means. Give that half-cent back to the people.

When the next recession hits, the General Assembly then has a cushion in the tax rate. They can put the half-cent back if necessary--if budget cuts won't work.

Leaving the tax rate the way it is, expanding the size of government, and starting general fund appropriations for pre-K leads lead to only two alternatives: Increase the sales tax rate to 10 percent or higher, or enact a state income tax.

Which of these alternatives do you want to vote for boys and girls?

The stock market shocks of the past week and slower home sales could be signaling the lean cows are getting close. Even Alan Greenspan is worried. Will the legislators be as wise as Joseph and Pharaoh or will they waste our substance and leave us unprepared in a time of famine?

Do you really have to ask?

Frank Cagle is a political analyst and the editor of Knoxville Magazine . You can reach him at frank@frankcagle.com .

© 2007 MetroPulse. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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