MauryTHINKS

Wearing rain gear and stickers reading, “Guess what? It’s Raining,” and “Cut Tax Loopholes – Don’t Cut Tennessee,” scores of voters from a wide range of organizations gathered at the State Capitol as Governor Bredesen prepared to outline his proposal to address the half-billion dollar budget shortfall. Groups gathering to call for alternatives to the cuts include Tennesseans for Fair Taxation, Stand for Children, Common Cause, SOCM, Tennessee Conference on Social Welfare, Jobs with Justice, Tennessee Alliance for Progress, MANNA, and Tennessee Health Care Campaign.

The group points out that there are fiscally-sound alternatives to cutting public investments that are vital to our state’s future, alternatives ranging from closing corporate tax loopholes to tapping the state’s “Rainy Day Fund.” While discussion continues around long-term solutions to the shortfall, Legislators should seriously consider tapping the Rainy Day Fund the group says. “If we cannot use the Rainy Day Fund when the Governor is threatening to cut vital public investments and laying off thousands of state employees, then we should consider re-naming it as the ‘40 Days and 40 Nights’ Fund,” says Dave McIlwaine, Board Chair of Tennesseans for Fair Taxation (TFT). “I mean, really, how bad does it have to get?”

As well, the group criticized the Governor and lawmakers for ignoring, and even stalling, viable long-term and fiscally-sound alternatives to cuts. One option would recover revenue that the state should already be receiving by closing a number of corporate loopholes. By requiring large, parent corporations and their various subsidiaries to file their taxes as one, combined business, rather than as separate subsidiaries, this reform would render the shifting of profits between subsidiaries moot, closing a wide array of tax loopholes in one fell swoop.

This “combined reporting” requirement is at the core of the Food and Business Tax Fairness Act (SB3158/HB3182). In addition to closing corporate tax loopholes, the bill would reduce the food tax from 5.5% to 4.5%, with the remaining balance available to help with the current budget shortfall. According to three different sets of assumptions, this option could raise between $110 and $250 million. That leaves between $20 million and $160 million in revenue for the shortfall, even after paying for the food tax reduction.

Other short-term options to raise revenue were also overlooked the group says. The state could repeal a number of unfair sales tax exemptions, mostly on services, in the tax code. The state could also repeal the single article cap, which effectively lowers the sales tax for big-ticket, luxury items. In addition, the state could increase the coal severance tax and require deposits on beverage containers. These options would have raised significant amounts of revenue, but the Administration gave them scant attention according to the coalition.

“The public needs to know that this Governor and many legislators knew early on that revenue would come up short, and they ignored viable revenue options,” says Brian Paddock, a TFT Board Member. Paddock adds, “This shortfall is not just the result of a slumping economy. These conditions are also the result of deliberate political decisions. The Governor knew as far back as January that revenue would come up short.” Tennessee’s tax system has a number of structural problems, such as heavy dependence on the sales tax, that make it unfair and inadequate for the type of public investment needed in Tennessee the group says.

“In the absence of comprehensive reform, there may be many rainy days in the years ahead,” concludes Paddock. “Legislators and the Governor should begin to look seriously at options for reforming our tax system and closing the revenue-gap. In the meantime, we have a Rainy Day Fund for a reason. It’s time we put it to good use.”

Contacts:
Bill Howell, TFT staff, 615-289-1397 (mobile).
Brian Paddock, TFT Board Member, 931-510-7823.