April 8, 2004

The First Bredesen Tax Increase

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NASHVILLE - On the same day of news that the state's revenue surplus for the current fiscal year grew 27.5 percent in one month - rising $30 million to more than $141 million - some legislators are coming out against Gov. Phil Bredesen's plans for a stealth tax increase on Tennessee's businesses.

As documented here, Bredesen is behind a move to raise taxes on Tennessee business by $75 million in the fiscal year that starts July 1, by "decoupling" the state's excise tax depreciation schedule from the federal depreciation schedule (for depreciation of capital investments by business) despite the governor's own solemn promise to balance this year's budget without resorting to tax increases.

It would be very easy for Bredesen to keep the promise, with the state rapidly piling up a large cash surplus. Indeed, 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. The bill is included in the 3-inch-thick binder in which the Bredesen administration outlined its entire legislative agenda for 2004, and Bredesen's Department of Revenue is lobbying for its passage. Assistant Commissioner of Revenue Reagan Farr, a Bredesen political appointee, testified on behalf of the legislation before the House Finance Committee on Tuesday,

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

But what they won't admit is that it's a tax increase.

"If they collect $75 million more in taxes, that's what I call a tax increase. The administration says it's a tax collection increase but not a tax increase. Sounds like he [Bredesen] is getting too smart for his own good," says state Rep. Chris Clem, R-Lookout Mountain.

The required "fiscal note" that accompanies the legislation estimates that this will increase state revenues $75 million this year.

That will counteract the economic-growth impact of business tax cuts at the federal level. "We need to look at ways to stimulate our state's economy, to grow jobs and help businesses thrive. This will does just the opposite," says state Rep. Glen Casada, R-College Grove.

His sentiment mirrors that of Rep. Tim Garrett, an anti-income tax Democrat from the Nashville suburb of Goodlettsville, who commented during the hearing that "the Federal Government is trying to spur investment" and the Bredesen administration "is trying to unspur it."

But most of the Democratic leadership is for the bill. It is, after all, "an administration bill," and the administration is a Democratic one. Bredesen's chief water-carrier in the House is House Speaker Jimmy Naifeh, who hasn't pushed for an income tax since Bredesen was elected but still harbors the desire to increase state revenues via tax hikes.

But, in keeping with the Bredesonian spirit of fiscal discipline and "no new taxes," Naifeh promised no new taxes in a speech on the floor of the House on March 24. He said:

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

Naifeh's involvement in raising taxes on Tennessee businesses even as the economy struggles to shake off the last recession might come back to haunt him. Naifeh is facing a strong challenge for re-election from Dr. Jesse Cannon, a Tipton County medical doctor started campaigning last year to end Naifeh's reign of error. Cannon is campaigning on a platform that includes cutting state government down to size - not increasing it via stealth tax increases.