Mo' Money

Raising taxes with state awash in revenue is disgraceful

Frank Talk

by Frank Cagle

The national Republicans used their control of Congress to launch a spending spree that would make Paris Hilton blush. They betrayed everything they were supposed to represent, and they were turned out of office in droves last November when they lost the support of their base.

You would think it would be a cautionary tale for Republicans everywhere, but evidently Tennessee Republicans haven't been paying attention. They have been preaching about getting control of the General Assembly for years and finally succeeded last year in getting a slim majority in the state Senate and electing a Republican speaker. They promised things would be different. So what have they done with this newfound power?

They are poised to raise taxes at a time when the state is awash in revenue.

The state of Tennessee has been racking up surpluses for the past three years. The amount of tax collections over and above normal expenditures is approaching $1 billion. That's billion with a B. Despite the $1 billion surplus the General Assembly has given up on any effort to roll back taxes. Ask yourself how responsible a legislator can be if, faced with more cash than at any time in the state's history, he still votes to raise taxes. Surpluses, like compound interest, mount up. We now have surpluses on the budgets fattened by surpluses the past two years.

It's one thing to raise taxes during a budget shortfall. But anyone who votes to raise taxes in the face of an avalanche of existing revenue is dangerous.

What seems to be confusing the issue is that Gov. Phil Bredesen has proposed raising taxes on cigarettes by 40 cents a pack. Well, everybody hates cigarettesâ"even the people who smoke them. But it's beside the point. If you want to raise taxes on cigarettes, then cut taxes somewhere else.

We have a state tax structure that is vulnerable to recessions. Sales taxes and franchise taxes are tied directly to the strength of business activity. This is a golden opportunity to cut the sales tax rate by a half cent. This gives us a cushion for future downturns in the economy, and we can always put it back. But our sales tax rate is pushing 10 percent

The price of oil continues to rise, and gasoline is above $3 per gallon. This has to have an impact on the economy if it continues. Department store sales are down as people spend more and more of their income on gasoline. It is not a certainty, but it is certainly a possibility, that we could go into a recession next year. What happens then? All this money Bredesen and his legislative colleagues have spent will grow the size of the state budget and state government. With a downturn in collections, covering the gap will be all the harder. Then we will hear that the state's tax structure is not adequate. We have a structural problem with the tax system, and what we really need is a state income tax.

The irresponsibility of the General Assembly is setting us up for another financial crisis. Instead of giving us our money back it has built up a substantial rainy day fund. It is enough for a short-term crisis. It's enough to get Bredesen through his second term and safely out of office. Then it's the next governor's problem.

The most surprising thing about what's going on in Nashville is the lack of public outrage. There isn't any incentive for legislators to cut the budget. There is certainly a real incentive to approve Bredesen's budget. There is a proposal to sweeten passage of the budget that includes up to $100,000 in pork for each district, to be spent at the legislator's discretion.

There is also little incentive for the local delegation to speak out against this money grab. Bredesen has finally decided to address the flaws in the Basic Education Program when it comes to distribution of education moneyâ"more money for Knox County. There is enough money to deal with the BEP funding problem without raising taxes, but they have become intermingled. Given the squeeze on Knox County government to fund the pension plan for the Sheriff's Department, no one in Knoxville is willing to rock the boat.

So Bredesen gets to be a hero, legislators get to dispense some pork, local governments like Knox County get off a financial hook.

The only people who will eventually lose with this scenario are the people of Tennessee.

Four years ago, when the Legislature raised the sales tax, there was outrage across the state. Newspaper editorials talked about the regressive nature of a sales tax and how irresponsible it was to raise it. Well, the sales tax is still there and we can afford to lower it. Have you seen one editorial demanding that the regressive sales tax increase be repealed?

Maybe I missed it. m

Frank Cagle is a political analyst and the editor of Knoxville magazine. You can reach him at .

Frank Cagle is a political analyst and the editor of Knoxville magazine. You can reach him at .


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