April 8, 2004

Bredesen Pushes Tax Increase on Business

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NASHVILLE - HobbsOnline has learned the Tennessee Gov. Phil Bredesen is behind a move to raise taxes on Tennessee business by $75 million in the fiscal year that starts July 1, despite Bredesen's own solemn promise to balance this year's budget without resorting to tax increases.

Indeed, it ought to be easy for the governor to keep that promise, as the state is piling up record revenue and a large surplus that could top $200 million this fiscal year. And Bredesen promised no tax increases in the fourth paragraph of his State of the State address nine weeks ago, saying, "The new budget I am submitting to you is - once again - balanced. And - once again - it requires no new taxes."

Yet Bredesen is backing House Bill 3529 and Senate Bill 3427 – legislation that will, indeed, increase state taxes on business by $75 million. Bredesen's Department of Revenue is lobbying for it. His Assistant Commissioner of Revenue Reagan Farr, a political appointee, testified on behalf of the legislation before the House Finance Committee. And the bill is included in the 3-inch-thick binder in which the Bredesen administration outlined its entire legislative agenda for 2004.

"This is an administration bill," says House Majority Leader Kim McMillan, a Clarksville Democrat.

Here's how the tax increase, which will hit all businesses that pay the state's excise tax, will work: Years ago, Tennessee "coupled" its depreciation schedules to the federal depreciation schedules – if the federal government changes its depreciation schedules, Tennessee's automatically adjust to mirror them.

President Bush's last two tax relief packages contained accelerated depreciation provisions that encouraged businesses to make capital investments, in order to spur economic growth – and it's working. Capital investment by business is rising.

The tax-increase legislation Bredesen is pushing would "decouple" Tennessee's depreciation schedules from the federal – Tennessee's would revert to the schedules in place before President Bush passed his first tax cut.

The net effect of this bill is that small businesses in Tennessee will not get the benefit of accelerated depreciation if this bill passes. Furthermore, this is a permanent decoupling so if the federal depreciation schedules are accelerated again, Tennessee businesses won't see it on their state taxes. The required "fiscal note" that accompanies the legislation estimates that this will increase state revenues $75 million this year.

Rep. Gene Davidson, a Robertson County Democrat who fell out of favor with powerful House Speaker Jimmy Naifeh for not supporting Naifeh's unconstitutional income tax plan two years ago, said in a Finance Committee hearing Tuesday that the Department of Revenue won't call this is a tax increase but that's exactly what it is. Davidson did manage to get Farr to concede that Tennessee businesses will pay more tax to Tennessee if the bill passes, but Farr refused to call it a tax increase.

The legislation also means businesses that are filing quarterly estimates will have to adjust their tax returns upwards for the remainder of the year because their estimates for the first two quarters of the year are based on having accelerated depreciation.

Rep. Tim Garrett of the Nashville suburb of Goodlettsville - another anti-income tax Democrat – commented in the same hearing that "The Federal Government is trying to spur investment and the State of Tennessee is trying to unspur it."

Bredesen isn't the only Tennessee politician breaking a promise to balance the FY 2004-05 budget without raising taxes.

Naifeh promised now new taxes in a speech on the floor of the House on March 24, where he said:

"We're gonna' balance this budget. We're gonna' do it with no new taxes."

Perhaps it was an April Fool's joke.

Or maybe they were all just lying to you.