MauryTHINKS

If water is pouring from the sky, but the governor doesn’t want to see it, is it really raining? From where I sit, it is raining in Tennessee.

In his January 2008 State of the State speech, Gov. Phil Bredesen told the people, “We expect our revenues this year to fall at least $180 million below the final projection adopted last spring.”

Our tax base is slumping because Tennessee relies too heavily on the sales tax. The governor admitted months ago that Tennesseans’ disposable income is decreasing. We are trying to keep the mortgage or the rent paid while the cost of food, gas, and utilities rapidly increase.

The governor was up to his ankles in water in January, but he was silent on new sources of revenue to balance the budget. Since then, the reports of less than expected revenue continued month after month. By March, Bredesen still failed to acknowledge the need for new revenue. Contrary to reality, he applauded the revenue-raising potential of our maxed out sales tax for being resistant to economic fluctuations. Now we are about $365 million behind for this fiscal year. The governor has now proposed a budget for 2008-2009 with cuts of $468 million to state services, programs and staff.

If state tax collections continue to get worse, the cuts may rise to $585 million during the next fiscal year.

In this torrential downpour, state employees are being offered “buy-outs” followed, if necessary, with layoffs. Vulnerable populations, including foster children and medically needy TennCare applicants and recipients, will suffer cuts to vital services. However, since it is not raining at the governor’s mansion, tapping the rainy day fund is not on the table.

Let’s be clear about roles and responsibilities. The governor and the legislators are not misguided weathermen, they are rainmakers. The deficit this fiscal year and in the 2008-2009 budget was created by deliberate political decisions to ignore the mounting deficit and viable revenue options.

Closing a number of corporate loopholes is one option that would have recovered revenue that the state should already be receiving. Doing so would require multi-state corporations to file their taxes as one, national entity rather than as individual subsidiaries. Right now, corporations are able to shift their profits to holding companies in other states to make it appear as though they have not generated profits in Tennessee, reducing the parent corporation’s taxable state profits.

In the face of a colossal deficit, part of the revenue recovered from closing corporate loopholes should be used to pay down the deficit. According to three different sets of assumptions, including the Department of Revenue’s own, this could raise between $110 and $240 million. State revenue officials have deliberately stalled this option. Other short-term options to raise Revenue were also overlooked. The state could repeal a number of irrational sales tax exemptions, mostly on services. What’s fair about exempting beauty pageants from the sales tax, while baby food is taxed? The state could also repeal the “single article cap,” which effectively lowers the sales tax for big-ticket, luxury items.

The governor argues that we only need good management and accountability practices. But how do you manage $33 billion of genuine need with $28 billion in projected revenue? The answers the politicians actually give us are: underestimate the need, or ignore the need, and lower expectations.

This is poor management at best and deception at worst. Accountability requires managers to make tough decisions on the record. The truth is that we have an outdated tax system that cannot address our modern needs. The decision must be made to restructure the state budget and tax system. A modern tax system would be adequate for our needs and fair to all taxpayers. It would be more resilient when the national economy turns downward.

The problem is not the budget deficit, but a deficit of leadership. We need leaders who will recognize our short and long-term needs and help us own up to our responsibilities. If legislators and our governor ignore new revenue options, cut vital services, and lay off public employees in the face of high food prices, high gas prices, and rampant foreclosures, then shame on them.

Real leaders would work at creating a sound tax structure for Tennessee’s long-term financial condition. They are willing to tell voters what they need to hear — not just what they want to hear. Real leaders have sense enough to come in out of the rain.

Brian Paddock
Chairman
Tennesseans for Fair Taxation Action Fund Board