CATS suffers narrow defeat in Tennessee House vote
By TIM WHALEY
Tennessee House supporters of the Continuing Adequate Services and Taxes compromise budget plan lost by a narrow 47-45-3 vote Tuesday night, and then were stunned when House leaders pulled back from a planned income tax vote.
House lawmakers need 50 votes to pass any measure.
CATS sponsor Rep. Frank Buck, D-Dowelltown, said he wasn't in the room when an agreement was made to run CATS and then bring the income tax for a vote.
"But my understanding was that we would vote on our plan and then they would bring the income tax proposal up, and we were going to vote to approve it or declare it dead," Buck said.
With the income tax plan out of the way, CATS supporters hoped to peel off the necessary votes to pass their plan.
Now, Buck said the CATS supporters must go back to the Finance Committee to try again.
Locally, those voting "yes" on the CATS plan included Reps. David Davis, R-Johnson City; Steve Godsey, R-Blountville; and Jason Mumpower, R-Bristol.
Reps. Ken Givens, D-Rogersville; Ralph Cole, R-Elizabethton; and Zane Whitson, R-Unicoi, all voted no.
Rep. Bob Patton, R-Johnson City, was among three lawmakers who passed on the vote.
Businesses, smokers and drinkers would be among those scratched the deepest by the CATS plan.
Businesses would pay $75 million more in corporate income taxes under the plan, as the excise tax rate moves from 6 percent to 6.75 percent.
<> Also, CATS would eliminate a federal tax break for business by de-coupling the state rate from federal returns, raising $50 million.
And businesses would pay $27.9 million more in higher non-water energy costs in manufacturing.
Givens called the measure the biggest anti-business vote in state history, a hurtful blow given that business tax collections this year are down 20 percent.
"I appreciate that Representative Beth Harwell, who chairs the state Republican Party, agreed with myself and 40 income tax supporters that this plan is the most anti-business tax proposition we've ever seen in the 14 years we've served down here together," Givens said. "I also agree with President Bush and the Republican House that we need to stimulate the economy ... but by de-coupling, we totally gut the job-creation aspect of the Republican-sponsored plan out of Washington."
Meanwhile, Davis, Godsey and Mumpower - criticized by some as "do-nothing" lawmakers - were at least pleased to get a chance to vote for the CATS plan, a measure they have supported for some time now.
"The CATS budget was the only thing protecting the citizens of Tennessee from an unconstitutional income tax or continued government shutdown," Davis said. "I think it's very unfortunate that the pro-income-tax supporters didn't come onboard to help reopen our government."
Davis also said he remained true to his constituents, supporting a "common-sense" budget that avoids the income tax.
Since 50 lawmakers did not reject CATS, it can be brought up again.
"If income taxers want to keep government open, they need to go ahead and vote in what they believe in," Davis said. "But hopefully, they will move toward a more common-sense, middle-of-the-road approach that is constitutional."
In addition to business taxes, CATS would hike sin taxes by 200 percent on cigarettes and nearly double taxes on wine, liquor and beer. Sin tax measures raise $196 million.
Finally, CATS tags everyone, business or resident alike, raising the local-option sales tax to a uniform 2.75 percent and keeping the difference - $248 million - to help run state government.
The move is repealed in one year but would leave local governments with property taxes as the only way to raise revenue at that level.
Other changes would increase the price of big-ticket items, with the full 8.75 percent sales tax rate applying to the first $3,900 of any purchase. The current cap is $1,600.
Newspaper sales and subscriptions, vending machines and coin-operated amusements would all be subjected to the state's new 8.75 percent sales tax rate.
Other items subjected to the sales tax include space rentals at fairs, utility poles, public pay phones, property rentals with crew, film and transcription rentals, the first $150 of club memberships, and physical fitness facility fees.
Finally, commercial trailers would be assessed a $100 registration fee.
In all, the plan raises $796 million.
Meanwhile, Sen. Jerry Cooper, D-Morrison, is working on yet another version of CATS that he said the business community finds "99.9 percent" acceptable.
"Instead of leaving business out of the discussion, I brought them and kind of acted like a mediator," Cooper said. "At first, they said no to everything ... but we finally came up with something they can live with."
At the heart of the Cooper plan is a 1 percent sales tax hike, taking the state rate from 6 percent to 7 percent.
Other aspects of the Cooper plan would de-couple business taxes, use much smaller sin tax hikes, hit businesses with a 0.5 percent excise tax increase, and hit consumers with a $10 automobile registration fee increase and a $3,200 single-article cap on sales taxes.
The plan would also dramatically increase the number of professionals subject to the professional privilege tax, and raise that tax from $200 a year to $300.
The Senate was adjourned Tuesday night, but Cooper said he will bring his plan up Wednesday in the Senate Finance Committee and hopefully get a floor vote later Wednesday.
Cooper's plan raises $903 million in the first full year.
Also, early Tuesday, Gov. Don Sundquist offered his own compromise tax plan with elements of a sales tax expansion, sales tax hike, 3.75 percent income tax, and constitutional convention call. It was largely ignored, at least for now, in the General Assembly.
House in deadlock on taxes, to meet today
By BONNA de la CRUZ and DUREN CHEEK Staff Writers
The state House narrowly defeated a plan to boost business, sales and ''sin'' taxes last night and sponsors said they felt betrayed when House Speaker Jimmy Naifeh did not subsequently bring his income tax plan up for a vote, as they said he said he would do.
Angry income tax opponents and backers of the failed tax plan charged that Naifeh made a strategic agreement with them, then broke his word to bring his income tax proposal to a vote or declare it dead.
''I can't do anything when people don't keep their word,'' state Rep. Frank Buck, D-Dowellown, told backers of his plan, which he calls the Continuing Adequate Taxes and Services plan.
The developments appeared to deepen the divide between those for and against a state income tax.
Before last night's vote, Naifeh struck a gentlemen's agreement with bill sponsor Sen. Doug Jackson, D-Dickson. Jackson did not want a vote until an income tax had been decided on, but agreed to move the Buck-Jackson bill first in the House if Naifeh would bring an income tax up within two hours after the Buck-Jackson vote or declare an income tax dead, according to those involved in negotiations.
After adjourning the House at 10:20 p.m., without considering an income tax, Naifeh said he was about two votes short of the 50 needed to pass a 4.5% flat-rate income tax plan.
''We do not have the votes tonight and will not run it,'' Naifeh told reporters. ''I told Senator Jackson and Representative Buck that if we didn't have the votes, we would so proclaim.''
But, Naifeh added, ''Anything is alive as long as we're here.'' He also said members need to remain flexible.
Rep. Bobby Wood, R-Harrison, who backed the Buck-Jackson plan, said flatly, ''The speaker broke the agreement.''
He said the Buck-Jackson forces came to the floor hurriedly and unprepared to keep their part of the bargain.
''They told us, if you will go ahead and move this article out of their way and bring it up for a vote, then they would bring their bill to a vote or publicly declare they didn't have the votes and move forward without it. We were deceived. They simply did not keep their word.''
Under the agreement, the Buck-Jackson plan could be revived today if an income tax proposal is not successful.
The Senate Finance Committee is scheduled to meet at 8:30 a.m. and could consider a proposal by Sen. Jerry Cooper, D-Morrison, to raise the state sales tax from 6% to 7%, raise car registration fees by $10 and increase business taxes.
If approved, it could move to the full Senate, which meets at 10 a.m.
The House Finance Committee is to meet at 9 a.m. to continue discussions on a no-new-taxes budget, which proposes deep cuts to current spending.
The Buck-Jackson proposal was defeated with 47 for, 45 against and three abstaining. The plan needed 50 votes to pass.
It would have raised $767 million by taxing businesses, raising the sales tax to 8.75% statewide and raising ''sin taxes.''
The General Assembly is working in overtime this week after failing to pass a permanent budget on Sunday, the last day of the 2001-02 fiscal year.
The state is operating under an ''essential services,'' budget, which expires Friday. Senate leaders have set a deadline of tonight to pass a permanent budget.
Lawmakers have been on the hunt for $757 million, the amount they say they need to fund this year's budget, which began Monday, at the same level as last year.
The failed Buck-Jackson bill was offered as an alternative to deep budget cuts or to an income tax.
''Every single one of us can find something in this bill they don't like, but it is our intention to throw out a life preserver to the state of Tennessee.
This bill can save us from disaster,'' Buck said.
Proponents said the tax plan would have fully funded K-12 education, higher education and other state programs at last year's level of services, as well as open the state's finished, but unopened firefighter training academy in Bedford County.
But opponents said the bill did not provide sufficient money for state services. Business lobbyists complained it was too tough on their interests, including raising the excise tax on corporate income from 6% to 6.75% and increasing alcohol and cigarette taxes.
With 47 yes votes, the proposal had two more votes than Naifeh's 4.5% flat-rate income tax plan, which failed by five votes in May.
''We're in a strong position,'' Jackson said after the vote.
The surprise vote on the Buck-Jackson plan came at the end of the second day in which lawmakers had not taken any action on budget or tax measures, despite the state being in a partial shutdown.
''People felt the House needed to move,'' said Jim Kyle, D-Memphis, vice chairman of the Senate Finance Committee.
The budget impasse has been aggravated by a rift between the two houses that has deepened since Sunday, the initial deadline for a budget to be passed.
The rift began when the Senate rushed Sunday night to approve a tax plan offered by Sen. David Fowler, R-Signal Mountain, and a $936.6 million budget that keeps state services at status quo. Naifeh proceeded to call the Senate's tax bill ''a piece of trash,'' which was rushed forward so quickly there was not an accurate accounting of what it would raise.
House leaders called the Fowler plan flawed in its drafting, constitutionally suspect and crafted without their consultation. Senate leaders retorted that the House knew their plans all along.
Yesterday, in an effort to bridge the divide, Gov. Don Sundquist offered a compromise tax plan to legislative leaders. ''Until we act together, we're not going to solve the problem. We are family here,'' Sundquist said.
Legislative leaders then met later to broker a deal for the House to take immediate action.
During debate on the Buck-Jackson plan last night, Rep. Gary Odom, D-Nashville, proposed taking a portion of car registration fees that now go to the road building fund and raising the state sales tax by a quarter percent instead of raising the local option rate to a uniform 2.75%. House members voted not to pursue the measure.
Odom said the uniform 2.75% rate was unfair for 60 counties, including Davidson, that have local sales tax rates below that level.
Rep. John Arriola, D-Nashville, proposed upping the 2% increase in car rental fees to 3% as a way to provide $10 million for long-term care for the elderly, a service in which Tennessee ranks near the bottom nationwide. The amendment failed.