Posted on 06/27/2002 4:11:40 AM PDT by GailA
New plan appeals to anti-tax lawmakers Wilder backs 6% flat tax, repeal of state sales levy
By Tom Humphrey, News-Sentinel Nashville bureau June 27, 2002 NASHVILLE- A new state tax reform plan surfaced on Wednesday with the strong backing of Lt. Gov. John Wilder and indications that other key legislative leaders would join him.
Among them was Senate Republican Leader Ben Atchley of Knoxville, who said he stands ready to retreat from his longtime opposition to any proposal incorporating a state income tax.
Wilder's plan, presented to the Senate Finance Committee by state Comptroller John Morgan, calls for a flat-rate 6 percent state income tax coupled with repeal of the present 6 percent state sales tax on most goods.
Other provisions of the proposal: The income tax would apply to adjusted gross income, as calculated on federal tax returns, above the federal poverty level. Under current standards, that means the tax would cover income above $8,800 for a single person; $11,200 for a family of two; $14,700 for a family of three and $18,100 for a family of four. Local government sales taxes would continue under the proposal and be set at a uniform 2.75 percent statewide. That tax would apply to the full purchase price of items. Under current law, the local sales tax applies only to the first $1,600 of a major purchase.
The state sales tax would remain on selected items and be increased from the current 6 percent to 7 percent. The higher sales tax rate would apply to restaurants, alcoholic beverages, cigarettes, rental cars and motel bills along with "amusements" such as tickets to sporting events, movies and concerts.
Under the proposal, the income tax and repeal of the general sales tax would take effect on Jan. 1. The state's new fiscal year begins Monday and the Legislature must enact some sort of budget by then to avoid a government shutdown.
To cover the six months until Jan. 1, the Wilder bill calls for an increase in the general state sales tax from 6 percent to 7 percent for that period.
The next step in the plan would be to hold a statewide referendum in November, 2004, on whether to have a constitutional convention on taxes. The convention's recommendations, which could include abolishing the income tax, would go before voters in 2006 under the tentative plan described by Sen. Jim Kyle, D-Memphis.
That would give Tennesseans time to see the impact of the tax reform package before making a decision, Kyle said.
House Speaker Jimmy Naifeh, meanwhile, said he is considering adding a similar convention provision to the 4.5 percent flat-rate income tax plan he has been pushing.
But Naifeh also hailed the Senate proposal, which could come up for a vote as early as today. If it wins Senate approval, Naifeh said "we'll give it everything we've got" to try and gain House approval as well.
Indeed, the beaming House speaker jokingly displayed a sign late Wednesday in the Legislative hallways that said, "Giddy Up and Go Six and O."
Morgan said the "Six-and-O" package would give the state a net increase in revenues of $1.23 billion in its first year and $1.7 billion in the second year of operation. In the second year, he said, the package would leave the Legislature with "flexibility" to consider using some funds to lower local property tax rates or make rebates.
The comptroller also said that Tennesseans save money through repeal of the general 6 percent sales tax and the ability to deduct the state income tax from their federal income taxes. Out-of-state residents who work in Tennessee would also pay the income tax.
The net effect of those savings and the tax on out-of-state residents, Morgan said, would be about equal to the $1.2 billion state revenue increase.
"It's a good plan," said Wilder, who has long complained that state sales taxes cannot be deducted from federal income taxes while state income tax can be deducted.
In effect, Wilder said, the federal government through deductibility would be covering most of the cost to Tennessee taxpayers.
"We get as much out of Uncle Sam as we get out of the taxpayers of Tennessee," said Wilder. "I want it all to come out of Uncle Sam."
Morgan said that, if the plan is enacted, Tennessee would have a lower sales tax rate than any state it adjoins. He predicted that would a huge increase in retail sales as "tax leakage" now flowing from Tennessee to states with lower sales tax rate is reversed to bring sales to Tennessee. The boost in retail sales likely would be $5 billion or more per year, Morgan said.
Morgan said he saw no economic downside to the plan except that "some mobile, high net-worth individuals might move somewhere else" to avoid the 6 percent income tax.
Wilder has over recent years been ambivalent on other income tax proposals, at times declaring his opposition and at other times indicating an inclination to support some type plan. Naifeh said that his open embrace of the proposal on Wednesday was "very encouraging" for proponents of tax reform.
Atchley said he was impressed by the "Six-and-O" proposal and, subject to further study of "the devil in the details," is inclined to support it.
"The condition we're now in causes you to look at the whole situation," said Atchley. "We are about to do serious harm to this state."
The Senate Republican Leader said he faced a "conflict in ethics" in deciding whether to support an income tax, which he believes can provide a better tax system, despite a long-standing promise to oppose such a levy.
"When you have a conflict between two ethics, you have to select the one that does the least harm and the most good," said Atchley. "It just, in reality, seems that it (an income tax) is going to be the only solution" to the state's fiscal crisis.
When a reporter observed that anti-tax activists would likely be angered by his change in position, Atchley said, "I understand that.
"My concern there is mostly for my family. But my family is strong and we have to do what's right," he said.
The "Six-and-O" plan joins a clutter of other tax and budget proposals pending in the Legislature, which may work through the weekend to try and avoid a government shutdown.
Though the proposal appeared to have enough support to clear the Senate Finance Committee, its fate on the Senate floor is highly questionable. Many senators have declared opposition to a state income tax and some, such as Sen. Mike Williams, R-Maynardville, said they oppose the new proposal as adamantly as any.
There were no votes on any of the pending proposals on Wednesday.
Gov. Don Sundquist's administration, meanwhile, formally filed legislation that would avoid a complete shutdown of state government if no regular budget is passed by midnight Sunday.
The "Essential Government Services Act" appropriates to the governor "a sum sufficient" to cover operations of prisons, mental health institutions, law enforcement, contract obligations and some other crucial functions for the period of July 1-5.
"This gives the governor the latitude to make the decisions about what is essential in each of those (state government) departments," said Deputy Gov. Alex Fischer.
Though the most crucial functions of government would continue, Fischer said, that thousands of workers would be "furloughed" without pay under the plan.
The five-day period, he said, would give the Legislature extra time, if needed, to come up with a permanent budget.
"I hope it's comforting to the citizens of this state and our state employees that we're logically going about it and that we don't anticipate having to put it into effect," he said.
Tom Humphrey may be reached at 615-242-7782 or humphrey@edge.net
OR BLAST EMAIL THEM ALL teaparty@nashville.com
Atchley needs LEANED on, newton needs as much grief as you can give him with out getting in trouble. Curtis needs a thank you for converting to a NO vote.
Tell them NO DOGS, NO CATS, NO INCOME TAX, NO BROKEN PROMISES TAX, CUT THE GROSSLY BLOATED BUDGET AND GO HOME!THIS PLAN STEALS $1,680 OUT OF OUR PERSONAL INCOME. THAT'S MONEY I WOULD HAVE SPENT ON MY GRAND SON. THEIVES, THEIVES, THEIVES
I strongly suggest everyone adamantly call Ben Atchley's office 1-(615)741-3791 and specifically ask for Tootie who is his top aide and inform her of your opinion.
I'll be calling for sure.
In recent months, he softened his stance and said he would support an income tax if it went through the process to make it constitutional. I guess it does not matter to Atchley that the legislature is supposed to go through the same process to approve an income tax that they went through on establishing a lottery in Tennessee.
Atchley's district is one of the most anti income tax areas in the state. Callers to local talk radio in Knoxville is absolutely ripping into him this morning.
..."and we promise never to raise taxes again once we have our foot in the door".....
Amazing. A plan to shift $1.2 billion ($1.7 in the second year) from the private economy to the state and this genius sees no economic downside. I imagine his IQ would exempt him from the death penalty under the Supreme Court's recent decision.
That's the problem. ET still is the most conservative section of TN. The difference is that our elected officials aren't! Ben Atchley stated on an interview with Hallerin Hill this morning that he has stood against an income tax for 30 years! So after 30 years you just throw everything you've stood for to the wind?!
Looks like Atchley is joining the RINO clan.
I called expressed my view and Tootie acted like she had taken plenty of calls. Keep it up folks.
Yes, I know Tootie. I know she is a busy person, but who isn't? Did I say she didn't do a great service for everyone? I don't think so.
She is Atchley's TOP aide and will deliver the message. Thus, she is the best contact to relay your message. But I didn't ask for her, although I would have, she answered the phone herself. And, in no way did I harrass her. Because I call my elected senator I'm harrassing her? Geez.
My advice to you is to throttle back your policing effort and quit reading your thoughts/conclusions into my posts.
If I put my tin foil coonskin cap on, I'd start to think you were a PRO-IT supporter. But, I wouldn't do that because I don't read things into your post that aren't there.
Secondly, it is legally wrong to authorize a law by reference to another government's regulations. The Constitution and laws of Tennessee are the responsibility of Tennessee alone. For instance: Tennessee can not say that if you are not sure about the speed limits in our state, consult with North Carolina, we follow their lead. Tennessee must make their own laws and regulations, and they must be passed into law by Tennessee legislatures.
In the same regard, Tennessee (or any state) can not rightly say that your tax is to be computed based on whatever the Federal government says your 'adusted gross income' is. This is a common problem, which will have to be solved in the courts, and that is where it is headed.
The bottom line is that the income tax is wrong on many levels, and should be rejected wherever it rears its ugly head.
June 27, 2002 No action taken on income tax
By KARIN MILLER And TOM SHARP
Associated Press Writers
NASHVILLE, Tenn. (AP) -- The Senate Finance Committee on Thursday delayed action on a new income tax plan to give proponents time to fine tune it, even as lawmakers crept closer to the Sunday deadline to balance the budget.
"The bottom line is that we're still trying to prove out the numbers we discussed," said Comptroller John Morgan, who is helping lawmakers prepare the bill. "We're not ready to pursue it right now."
The plan originally would have created a 6 percent flat income tax and a statewide sales tax of 2.75 percent, with no local options. An additional 7 percent sales tax would apply to amusements and tourist-related services, such as rental cars, motels, sporting events and country club dues. The higher sales tax also would apply to alcohol and tobacco.
Morgan said his staff was attempting to lower the amusement tax to 6 percent and increase business taxes to "offset some of the windfall" that stripping the sales tax off most items would give corporations.
The original plan also would have applied to Tennesseans with an adjusted gross income above the federal poverty level, which is $18,100 a year for a family of four. Lawmakers were adjusting that number to ensure it would not create a marriage penalty, making married couples pay more tax than two people filing individually.
The committee recessed after Morgan's remarks and will not meet again until called by the chairman, Sen. Douglas Henry, D-Nashville.
That placed other tax plans on the schedule on hold as well, including Sen. John Ford's income tax plan -- a 2 percent flat rate coupled with a 4.75 percent sales tax -- and a proposal by Henry to increase the sales tax, raise taxes on alcohol and tobacco, and make a few other changes to raise revenue.
The state needs about $800 million in new tax revenue to fund the same budget as this year next year. The state constitution requires lawmakers to balance the budget by the start of the new fiscal year, which is Sunday.
Most lawmakers want to avoid the budget that proposes to cut $750 million from state spending.
The new income tax proposal, similar to one long touted by Senate Speaker John Wilder, would raise about $1.5 billion a year once fully in effect, with a majority of it deductible from federal taxes.
Wilder, one of several lawmakers who signed an anti-income tax pledge during his last election, likes the plan because of that deductibility. Sales taxes paid by individuals are not deductible.
"We're going to get Uncle Sam," Wilder said Wednesday. "I want the whole tax to come out of Uncle Sam. I don't want the tax burden to be any higher on Tennesseans.
"This may all come out of Uncle Sam's pockets and into Tennesseans' pockets. And even though it won't be in the same pockets, it will be in Tennesseans' pockets."
The plan emerged after four years of stalemate over the best solution to Tennessee's budget troubles. The latest impasse has been in the House between lawmakers who support House Speaker Jimmy Naifeh's 4.5 percent income tax and those who support a temporary solution that would create a statewide sales tax of 8.75 percent and raise other taxes for one year.
The House and Senate met briefly Thursday morning. They were expected to reconvene late afternoon.
Tennessee General Assembly, http://www.legislature.state.tn.us/
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