Posted on 11/17/2002 5:46:08 AM PST by GailA
Limited new revenue could tax Bredesen's effectiveness
By Tom Sharp, Associated Press November 17, 2002
NASHVILLE - Gov.-elect Phil Bredesen vowed on the campaign trail that Tennessee needed more efficient management of state government, not new tax money.
Bredesen should get help fulfilling his no-tax pledge from the $933 million tax increase passed by the General Assembly in July. Conventional wisdom says even a moderately capable manager, let alone someone with Bredesen's reputed business acumen, should be able to manage for a while with that much new money.
Frequently overlooked is a contrary fact: There isn't that much new money available.
Less than half the new revenue produced by the tax increase is available for new spending. Nearly 60 percent of the extra money expected this year through the increase and economic growth is being used to fill the financial hole created by tricked-up budgets from the three previous years. Among other problems, those budgets relied on one-time money to pay for ongoing programs.
A second factor: The tax package did not reform the system, which has required significant rate increases about every seven years for the past six decades.
So how long will this latest increase last? Nobody knows for sure. Bredesen has promised to make it last four years, and unless there is a significant shock to the economy or the state budget - such as the recent court decree to equalize teacher salaries between urban and rural districts - that seems politically mandatory.
"If the economy doesn't improve or if, as some are suggesting, we have double-dip recession, then we could find ourselves in a really difficult situation fairly soon," state Comptroller John Morgan said. "The economy will drive consumption and consumption drives our tax revenues. But hopefully we're going to see improvements in the economy and we'll have a better time of it than we have for the last three or four years."
Citing the historical behavior of the sales tax in Tennessee, Morgan noted that the six- to seven-year cycle would carry the state through Bredesen's term.
Economist Bill Fox, head of the University of Tennessee's Center for Business and Economic Research, said state tax revenue historically has grown more slowly than the economy and will continue to do so, perhaps at a more pronounced rate.
"It's a slow deterioration in the share of the economy paid in taxes that occurs every year," he said. "The question then is, when is the tax revenue so low relative to the economy that it's no longer acceptable? That's a political question."
Fox says state taxes as a share of the economy are lower now than they were in the 1970s. "These tax changes were simply bringing us back to the share of the economy paid in taxes 15 to 20 years ago," he said.
He said higher tax rates tend to affect people's behavior more than lower rates. That means the new 7 percent sales tax could push residents to do more buying through the Internet or across the border than the 6 percent rate did, which would speed up the deterioration of the state's revenue base.
"A high sales tax is not a long-term solution," Gov. Don Sundquist said last week. "The tax system has to be reformed. It's just a matter of time."
The most recently proposed solution, a state income tax, is politically unpopular. Bredesen campaigned on the promise not to consider it in his first term. But even if he wanted to, the Legislature probably wouldn't.
Only 30 of the 45 "yes" votes cast for an income tax in the House last May will return to the chamber when the Legislature reconvenes in January. Seven lost elections; the rest retired or died. And the Senate lost its premier income tax proponent when Robert Rochelle quit.
House Speaker Jimmy Naifeh says the income tax is off the table until and unless a future governor gets behind it. Naifeh also says he believes there may have to be a constitutional convention before an income tax is approved.
If the income tax debate returns, it should have a new platform for discussion.
The Legislature created the so-called Haynes Commission - named for Sen. Joe Haynes, D-Goodlettsville, who pushed for it for two years - to conduct a "comprehensive study of the tax structure in Tennessee." Its report is due to the Legislature by July 1, 2004.
The commission will have 15 members appointed by the governor and the speakers of the two houses. The members will represent specified constituencies, including businesses, tax attorneys, accountants, state employees, labor unions, families, the elderly, health care, insurance, banks, cities, counties and farmers.
"They'll have an independent staff and be independent of the Legislature," Haynes said. "We've tried to get a diversified group not tied to any particular tax. I don't think that's ever been done in this state."
Commission appointments are expected soon.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.