April 27, 2007

Spending Spree: How the Tennessee Legislature Drives up Taxes By Ignoring the Copeland Cap

Here's video of the Tuesday press conference at which Tennessee House Minority Leader Jason Mumpower, R-Bristol, and House Minority Caucus Chairman Glen Casada, R-Franklin, discussing how Tennessee's budget is rising much faster than Tennessean's personal income, and why, with the state seeing huge revenue surpluses pile up, it's time to reduce the state's sales tax on food. VolunteerVoters.com had the press release that accompanied the press conference.

Mumpower and Casada are on the right track. Tennessee state government's spending growth is not supposed to outpace personal income growth in the state, under a provision in the state constitution called the Copeland Cap, except the legislature uses a loophole to increase spending faster almost every year.

One minor quibble with the charts Mumpower and Casada showed: the spending chart shows total state spending, including federal dollars, while the Copeland Cap only caps the growth of spending from state tax dollars. Still, spending today from state tax dollars is about $3.2 billion higher than it should be based on the cap.

That's because, starting with the 1984-85 fiscal year budget, the legislature has exceeded the Copeland Cap a dozen times, under a succession of Republican and Democratic governors. You can look it up. (Copeland was approved by voters in 1978 and took effect in 1979. The legislature voted to exceed it twice during the 1999-2000 fiscal year.)

Exceeding the Copeland Cap
Fiscal Year, Amount
1984-1985, $396.1 million
1985-1986, $58 million
1986-1987, $100 million
1988-1989, $101 million
1989-1990, $74 million
1991-1992, $703.1 million
1992-1993, $450 million
1996-1997, $55 million
1999-2000, $189 million
1999-2000, $81 million
2002-2003, $771 million
2003-2004, $275 million
Total: $3,253.2 billion

If the legislature had never broken the Copeland Cap, today's state budget could be $3.25 billion lower than it currently is, and taxes could be lower for all Tennesseans who eat food or buy things.

How much lower? A lot lower. The state's 6 percent sales tax on food is projected to bring in $465 million in FY 2007-08, while the state's overall sales tax of 7 percent other than on food is projected to bring in about $6.33 billion. If the legislature had never broken the Copeland Cap, the state this year could have had a balanced budget with zero food tax and an overall state sales tax of just 4 cents on the dollar.

What was the state sales tax rate in 1984, before the state legislature began exceeding the Copeland Cap - and passed a one-cent increase to fund it? 4.5 cents.

(I posted historical info on increases in the state's sales taxes here.)

And if we had lower overall sales tax rate and no tax on groceries, Tennessee's retailers - especially in the border counties - would be magnets for out-of-state shoppers, bringing more money into Tennessee's economy and more revenue into the state treasury. Meanwhile, Tennesseans would have more money left in their pockets to spend on other things - boosting the economy - or to save for a house, or a car or their children's college educations.

Instead, the legislature has repeatedly busted the Copeland Cap, a fiscal path that has undeniably lead directly to Tennessee having one of the highest state sales taxes in the country and a high sales tax on food. And the Bredesen administration is asking the legislature to again exceed the Copeland Cap.

It's time to reverse course and stop heading in the direction of higher taxes. Mumpower and Casada are on the right track.