February 26, 2007

Backtracking

Tennessee Gov. Phil Bredesen changes his story. He now says he wasn't implying that Republicans pushing for taking the sales tax off food are secretly hoping for an income tax - he says that's why Tennesseans for Fair Taxation is pushing for the food tax reduction.

In the same article linked above Gov. Bredesen claims cutting the food tax will cause future fiscal crises, portraying the food sales tax as a major part of the state's revenue. But it isn't In reality, sales taxes from the sale of food is a rather minor part of the state's overall revenues, revenue the state could easily learn to do without.

The food tax currently brings in about $450 million annually in revenue - an amount projected to grow by about 3.5 percent annually as the state's population grows. With the food tax revenues projected at approximately $465 million in the next fiscal year, reducing the food tax by just half a cent as the Republicans are proposing would reduce reduce state revenues by only $39 million in the coming fiscal year - less than 7 percent of overall sales tax revenues (projected at $6.797 billion) and less than 4.5 percent of overall tax revenues (projected at $10.656 billion).

A $39 million tax cut would require trimming Gov. Bredesen's proposed $27.5 billion state budget by just 0.14 percent. Gov. Bredesen is claiming that his budget proposal can not be trimmed by 0.14 percent - $39 million - even though almost every year the state runs a revenue surplus of between $100 million and $500 million.

The legislature certainly doesn't need to increase cigarette taxes to "pay for" reducing the sales tax on food by half a cent. Legislators merely need to trim Gov. Bredesen's budget proposal - which includes $900 million in additional spending over last year - by less than two tenths of one percent.

Republicans ought to be asking Bredesen why his $900 million spending increase can't be trimmed by just $39 million to begin phasing out the food tax. Because if Bredesen won't trim his budget by 0.14 percent to allow for a tax reduction at a time when the state is routinely running large revenue surpluses, then there is no conceivable scenario in which Bredesen would agree to any tax reduction at all.

By the way, Tennesseans for Fair Taxation proposes a faster reduction in the food tax - they want to cut it in half, by three cents right, away and I agree with them, although I disagree with their proposal to increase cigarette taxes to "pay for it." Raising cigarette taxes isn't necessary even to "pay for" TFT's proposal. Trimming the governor's proposed budget by just 1 percent would more than cover it. And that wouldn't actually be a cut in spending - it would merely trim Bredesen's proposed $900 million spending increase down to around $625
million.

And that's before next year's inevitable revenue surplus which would, inevitably, be spent too.

The bottom line: Tennessee's food tax is a minor piece of the state's total revenue and it can be slashed, quickly, even as government spending continues to rise.